Crude oil slides to two-week lows but demand looks healthy despite high rates

Crude oil futures fell this week following back-to-back weekly gains, after hawkish Federal Reserve meeting minutes and cautious comments by several Fed officials helped tamp down hopes for interest rate cuts that could boost energy demand.

Fed Gov. Chris Waller, for example, said there was “no rush” to cut rates following stronger than expected inflation and economic data since the start of this year.

The U.S. reported another build in domestic crude stocks this week alongside low refinery runs, while production held near a record 13.3M bbl/day.

“Worries that the Federal Reserve will leave interest rates high for longer overshadowed slowly escalating geopolitical risks, primarily in the Middle East,” StoneX’s Arlan Suderman said, adding that geopolitical risks matter for crude prices, “but they’re not currently restricting supplies in the world – only elevating the risks.”

But some analysts believe demand has remained largely healthy despite the impact of high interest rates; J.P. Morgan said its demand indicators show oil demand rising by 1.7M bbl/day month over month through February 21, compared to a 1.6M bbl/day increase in the previous week, likely helped by increased travel demand in China and Europe.

Front-month Nymex crude (CL1:COM) for April delivery settled -2.5% to $76.49 this week after tumbling 2.7% on Friday, and front-month April Brent crude (CO1:COM) closed -2.2% on the week to $81.62/bbl, dropping 2.4% on Friday.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI)

Meanwhile, U.S. natural gas futures surrendered most of the gains made midweek on Chesapeake Energy’s plan to reduce drilling and production in 2024 in response to low prices.

While the plan raised expectations of other production cuts, temperature forecasts into early March pointed to a lack of weather-driven demand at the tail end of the heating season.

Front-month Nymex March natural gas (NG1:COM) fell for the fourth consecutive week, -0.3% to $1.603/MMBtu, including Friday’s 7.4% drop; the front-month contract has plunged 40.9% over the last four weeks.

ETFs: (UNG), (BOIL), (KOLD), (FCG), (UNL)

In Europe, natural gas prices continued to drop with no end in sight, as the price for benchmark TTE gas settling -0.7% to ~€23/MWh, its lowest level since May 2021, with demand remaining sluggish given mild weather and the weakening economy, and storage levels even higher than the already above-average inventories last year.

Commerzbank analysts forecast benchmark TTE at 35/MWh by year-end 2024, expecting prices to increase during the year as Europe’s economy gradually recovers.

The oil and gas sector, as represented by the Energy Select Sector SPDR ETF (NYSEARCA:XLE), closed +0.5% for the week.

Top 5 gainers in energy and natural resources in the past 5 days: Western Midstream Partners (WES) +17.5%, Korea Electric Power (KEP) +15.4%, Braskem (BAK) +15.2%, Summit Midstream Partners (SMLP) +15.2%, Mach Natural Resources (MNR) +13.3%.

Top 10 decliners in energy and natural resources in the past 5 days: Fluence Energy (FLNC) -29%, Bloom Energy (BE) -28.3%, Meta Materials (MMAT) -27.6%, Plug Power (PLUG) -25.1%, Sigma Lithium (SGML) -20.9%, Stem (STEM) -20.7%, Atlas Lithium (ATLX) -16.6%, Uranium Energy (UEC) -15.6%, Ameresco (AMRC) -15.5%.

Source: Barchart.com