Oil futures fall to lowest in two weeks

Oil futures remained under pressure Friday, trading at two week lows as a resurgence of COVID-19 worries clouded the energy demand picture, and broader markets kept eyes on a hawkish Federal Reserve.

U.S. crude prices on Thursday ended at their lowest since late September, as China’s zero-COVID policy revived concerns the world’s second-largest economy would buy less oil and gas. There was little fresh news Friday to change that outlook.

Natural-gas futures joined the broader energy space in Friday’s retreat. Natural gas had bucked the downtrend for the sector Thursday, finishing higher as U.S. government data showed a weekly increase in domestic supplies that packed no surprises for the market.

  • West Texas Intermediate crude for December delivery
    CL.1,
    -2.16%

    CLZ22,
    -2.16%
    fell 71 cents, or 0.8%, at $80.93 a barrel, in early action. The contract retreated 4.6% to settle at $81.64 a barrel on the New York Mercantile Exchange Thursday. Prices marked the lowest settlement for a front-month contract since Sept. 30, according to Dow Jones Market Data.

  • January Brent crude 
    BRN00,
    -2.22%

    BRNF23,
    -2.22%
    shed nearly $1, or 1.1%, at $88.77 a barrel. The contract retreated 3.3% to $89.78 a barrel on ICE Futures Europe Thursday, settling at the lowest since Oct. 3.

  • December gasoline 
    RBZ22,
    -1.22%
    lost 0.2% to $2.4506 a gallon, while December heating oil
    HOZ22,
    -1.42%
    eased 0.4% at $3.5113 a gallon, down 0.4%.

  • December natural gas
    NGZ22,
    -3.28%

    NG00,
    -3.02%
     felll 3.5% at $6.141 per million British thermal units, after two days of strong gains.

Market drivers

Crude oil prices have come under pressure this week as demand concerns outweighed signs of tighter supplies.

China’s State Council warned cities to avoid “irresponsible loosening” of COVID-19 measures, according to the South China Morning Post. The Wall Street Journal reported a sevenfold surge in COVID infections in the past two weeks in China, even as the nation’s new policy of loosened measures was aimed at reducing the impact of zero-COVID restrictions.

On the supply side, traders ponder how much crude oil is going to come off the market once the Dec. 5 seaborne Russian oil embargo kicks in and whether there will be an effective price cap that allows Russia oil to hit the markets, but at a lower price.

Read: Why the EU ban and G7 price cap on Russian oil won’t guarantee a lasting rally for oil

Also see: U.S. drivers are likely to pay highest Thanksgiving gas prices on record

“The market will no doubt be focusing its attention on OPEC+ supply in the next few weeks, as it remains to be seen how much daily output will actually decline after the official announcement of a 2 million barrel reduction,” said Barbara Lambrecht, writing for the Commerzbank commodities research team, in a daily note.

“It is still unclear what impact the upcoming European Union embargo and the price cap that is to be set in the next few days will have on Russian supply,” the analysts continued in their note. “As yet, Russia still appears to be finding sufficient buyers and is even stepping up its oil production. That said, we are convinced that these two factors will drive down supply, which should lend support to prices in the coming weeks.”

The U.S. dollar’s movement was also in focus and could continue to impact commodities trading priced in the U.S. unit.

The greenback
DXY,
-0.19%
was little changed Friday, after a sharp fall to three month lows this week, but the bombardment of hawkish talk from Federal Reserve officials continued to help set the tone in broader financial markets
SPX,
-0.31%
on Friday.

“Every time a piece of good news on the inflation front leads to some loosening of financial conditions, the Fed sees no choice but to rein in the optimism…,” said Raffi Boyadjian, lead investment analyst with XM.

“But the most dramatic intervention came on Thursday when St. Louis Fed President James Bullard suggested that rates may need to go as high as 7% in the worst case scenario, with a 5-5.25% target range being the minimum level required to combat high inflation,” he added.

Supply data

Reported Thursday, U.S. natural-gas supplies climbed by 64 billion cubic feet for the week ended Nov. 11 to about 3.6 trillion cubic feet, according to data from the Energy Information Administration.

That reading compared with an average analyst forecast for an increase of 62 billion cubic feet, according to a survey conducted by S&P Global Commodity Insights.