Natural-gas futures drop over 10% , U.S. crude pulls back from 7-year high with domestic supplies up a second week
By Myra P. Saefong and William Watts / MarketWatch
Petroleumworld 10 06 2021
Natural-gas futures declined by just over 10% on Wednesday, a day after settling at the highest price since 2008, as Russian President Vladimir Putin said the country would boost supplies to Europe, which is bearing the brunt of a global energy crunch.
Putin said gas sales to Europe could hit a record and that flows via Ukraine could exceed Gazprom’s contract with Kyiv, Reuters reported. Critics have accused Russia of holding back supplies.
Wednesday brought a “modicum of good news for energy-strapped European nations,” with Russia’s offer to increase natural-gas exports to the continent, said Matthew Weller, global head of research, FOREX.com and City Index, in emailed commentary. “These headlines have, at least temporarily, broken the proverbial fever for natural gas prices.”
The remarks sent natural-gas futures in Europe tumbling. After spiking nearly 40% earlier Wednesday, U.K. natural-gas futures GWM00, -16.87% fell by more than 6% to 282.68 pence a therm.
U.S. natural-gas futures NG00, -3.08% also retreated, with the November contract NGX21, -3.14% down 64 cents, down 10.1%, to settle at $5.675 per million British thermal units, posting the biggest daily percentage decline since Sept. 2020, according to Dow Jones Market Data. Prices ended Tuesday at $6.312, the highest since December 2008.
“Although winter risk remains high, the storage situation seems like it will materially improve this month,” with some expectations of a triple-digit supply increase to be announced Thursday in the Energy Information Administration storage report, “and near-normal injections expected over the coming weeks,” said Christin Redmond, commodity analyst at Schneider Electric, in a daily note.
Limited supply from Russia has been cited as one factor that’s contributed to a sharp jump in natural-gas prices in Europe. U.K. natural-gas futures have jumped more than 400% in the year to date, according to FactSet.
“Low gas inventories across the globe as winter approaches have been pushing up demand in the physical market whilst supplies have been slower to respond,” said Warren Patterson, head of commodities strategy at ING, in a note.
“Unplanned outages at some French nuclear power plants due to a strike has also helped the rally in European power prices yesterday and supported gas demand in the spot market,” he said.
Despite Putin’s comments on Wednesday, however, “the energy crisis from Europe to China is far from over,” said Edward Moya, senior market analyst at Oanda, in a market update.
Oil futures also declined, with West Texas Intermediate crude for November delivery CL00, -1.89% CLX21, -1.89% down $1.50, or 1.9%, to settle at $77.43 a barrel on the New York Mercantile Exchange after ending Tuesday at the highest since 2014.
November Brent crude BRN00, -1.16% BRNX21, the global benchmark, lost $1.48, or 1.8%, to settle at $81.08 a barrel on ICE Futures Europe, after ending at a nearly three-year high on Tuesday.
Every dip in oil prices will be a “buying opportunity for energy traders as the U.S. will not be increasing production significantly and economic activity is expected to pick up next year,” said Moya.
U.S. Energy Secretary Jennifer Granholm raised the possibility of a release of oil from the government’s Strategic Petroleum Reserve to help calm the surge in gasoline prices, according to the Financial Times on Wednesday. She told the FT Energy Transition Strategies Summit that she is not ruling out a ban on crude-oil exports. The Energy Department last announced the intention to sell up to 20 million barrels of oil from the SPR in August.
Meanwhile, the EIA reported Wednesday that U.S. crude inventories rose by 2.3 million barrels for the week ended Oct. 1, marking a second straight weekly climb.
“We are starting to see the supply disruptions ease from the hurricane impact from weeks ago,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.
The weekly increase was above the average 200,000 barrel rise expected by analysts polled by S&P Global Platts. The American Petroleum Institute on Tuesday reported a 951,000-barrel climb.
“While crude stocks usually gather the bulk of the attention in inventory data, distillate stocks will become a closely watched metric in the months ahead due to the potential for stronger heating demand,” said Robbie Fraser, global research & analytics manager at Schneider Electric, in a daily note.
“That demand is connected to record high prices for natural gas in markets like Europe and East Asia, potentially allowing historically non-competitive options like diesel/fuel oils to become economically viable,” he said.
The EIA reported a weekly inventory increase of 3.3 million barrels for gasoline, while distillate stockpiles edged down by 400,000 barrels. The S&P Global Platts survey had forecast supply declines of 700,000 barrels for gasoline and 1.7 million barrels for distillates.
Crude stocks at the Cushing, Okla., storage hub edged up by 1.5 million barrels for the week, according to the EIA report. Total domestic petroleum production, meanwhile, rose by 200,000 barrels to 11.3 million barrels per day.
On Nymex, November gasoline RBX21, -1.06% fell 2.1% to $2.308 a gallon and November heating oil HOX21, -1.50% shed 2.1% to $2.442 a gallon.