Energy Markets Struggle to Make Gains

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All three conventional energy commodities closed in the red for the week amid oversupply concerns and weaker-than-expected demand from China.

Crude Oil

Crude lost mid-week gains
  • WTI crude futures settled at $76.7/barrel on Friday’s session, following reports that Qatar urged Iran to de-escalate tensions with Israel, offsetting any weekly upward moves.
  • The drop in oil prices also reflects broader concerns about weakening demand from China, the world’s top oil importer.
  • Daily oil production has increased by 22% over the last 4 years. The US is now the world’s largest oil producer, exceeding Russia’s output by ~35% and Saudi Arabia by ~38%.
  • OPEC and IEA have both lowered their oil demand growth forecasts due to China’s economic weakness.

Gasoline

Gasoline futures reached 6-month low
  • Gasoline futures in the US fell to around $2.35 per gallon, approaching the over-six-month low of $2.3 reached on August 6th, tracking the lower prices in oil benchmarks as markets continued to assess the demand outlook.
  • IEA noted that the oil market is due to record a supply surplus in Q4 if OPEC+ goes forward with its plans of phasing out production cuts.
  • This magnified the cartel’s downward revision to this year’s demand, primarily due to China’s slowing economy and the consequent drop in energy consumption.
  • Implied demand for gasoline increased after two consecutive weekly declines, strengthening +1.8% on a yearly basis.

Natural Gas

Natural gas struggles to gain as storage surges
  • US natural gas futures fell by over 3% w/w to below $2.15/MMBtu on Friday due to forecasts for cooler weather and high gas storage levels, despite a surprising draw in inventories.
  • US EIA reported a draw of 6 bcf from inventories for the week ending August 9th, lowering stocks to 3.264 tcf.
  • Despite this draw, storage remains 6.5% higher than last year and 12.5% above the five-year average.
  • High production and reduced demand from LNG maintenance have kept storage levels high.
  • The market remains weak, reflecting concerns about excess supply despite the EIA’s unusual early August draw.