Energy on Troubled Waters

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Crude oil and gasoline struggled to regain after previous weeks’ slump as global demand estimates lowered, while natural gas rose, reaching a 2-month high due to reduced output.

Crude Oil

WTI crude oil speculators send bearish signal
  • Investors are currently holding one of the lowest number of long positions in WTI oil contracts in the last 12 years.
  • WTI crude oil futures dipped slightly to $68.65/barrel, breaking a two-day winning streak, as production and refining activities in the US Gulf Coast resumed.
  • EIA data showed that nearly 42% of oil production remained shut down due to weather.
  • Despite these supply disruptions, oil prices faced downward pressure amid ongoing concerns about sluggish demand in key markets.
  • The IEA warned of slowing global oil demand growth, particularly driven by China’s weakening economy, and projected a potential supply surplus in 2024 even with OPEC+ production cuts.
  • Earlier data this week revealed a 3.1% decline in China’s crude oil imports from January to August 2024, compared to the same period last year.

Gasoline

Gasoline prices found support after freefall
  • US gasoline futures were around $1.9 per gallon in September, the lowest since February 2021, amid a broader slump in the oil market driven by reduced fuel demand.
  • This decline was fueled by recent US economic data signaling lower demand amid a cooling labor market, which intensified concerns over contracting factory activity.
  • Additionally, eased supply constraints from Libya and weak Chinese manufacturing data further pressured the market.
  • China’s factory activity saw its sharpest decline of the year, heightening fears that Beijing’s lack of stimulus will suppress demand for energy-intensive goods, a trend mirrored by reduced earnings for major Chinese oil producers.

Natural Gas

Natural gas futures rose to a 2-month high
  • US natural gas futures held above $2.3/MMBtu, near a two-month high, up 3% this week, driven by higher demand forecasts and reduced output due to Hurricane Francine, which forced producers to cut back.
  • The main driver is reduced gas injections into storage near the end of the storage season.
  • The EIA reported a 40 bcf storage increase for the week’s end, below forecasts and below last year’s and the five-year average.
  • Producers are expected to further reduce output in late 2024 following a 40% price drop over the last two months.
  • Estimates indicate a nearly 50% production cut, highlighting the growing dominance of shale output over offshore Gulf of Mexico supply.