Crude Takes Downside Turn
Crude oil has taken a decisive turn to the downside this morning with a move to its lowest level in seven months, and it is on-track for a second weekly decline in a row. Demand destruction continues to weigh on the market. A report that three state-owned refineries in China will increase their crude oil processing by 10% next month may have provided some support yesterday. Russia’s military mobilization also provided support on ideas it could increase the chances for supply shortages in Europe this winter, but it also strengthened the concerns about economic hardship that could cut into energy demand. Following the Fed’s rate hike on Wednesday, central banks in the UK, Switzerland and Norway have hiked their rates. This has rattled global risk sentiment today and sent crude oil lower. The Baker Hughes US oil rig count will be released later today. Following last week’s eight-rig increase, an increase of seven or more this week would put US rigs at their highest level since March 2020.
Natural gas continues to be pressured by heavy US production, constricted export capacity, and weak shoulder season demand. The market posted heavy losses on Thursday and extended them a bit overnight. Yesterday’s EIA weekly natural gas storage report showed a triple-digit injection last week, which was well above trade expectations and was the largest build so far this year. The Cove Point LNG export terminal has a scheduled maintenance shutdown for several weeks in October, which could further reduce US LNG export capacity. The latest 6-10-day forecast has above normal temperatures west of the Mississippi River and below normal along the East Coast. This could lower US power plant demand next week by 2.5 bcf per day. November natural gas recovered a bit off its lows overnight to trade in positive territory, but it remains on track for a second negative week in a row.
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