Crude Futures Fall on Weak Demand Outlook
NYMEX-traded crude futures on Wednesday settled below US$102 per barrel (/bbl) – at their lowest level in nearly three weeks – pressured by a surprise build in domestic distillate inventories and concerns over for the potential for a slowdown in global energy demand. Prices also dropped as traders sold off the geopolitical risk premium accrued on March 3 on fears of escalating tension in the Ukraine. By Wednesday, those fears had mostly subsided as U.S. Secretary of State John Kerry said the related parties agreed to resolve tensions through dialogue.
Meanwhile, U.S. supplies of crude oil rose and gasoline stockpiles fell in the week to February 28 – in line with market expectations, but distillates, which include heating oil, climbed unexpectedly by 1.4 million barrels, despite ongoing cold weather. The U.S. Energy Information Administration said commercial crude stocks rose 1.4 million barrels last week, slightly lagging analyst forecasts for a 1.5 million-barrel rise. West Texas Intermediate (WTI) for April delivery ended down $1.88 at $101.45/bbl. In European trading, receding fears of a disruption in Russian crude supplies and easing geopolitical concerns weighed on Brent crude oil futures. Prompt-month April Brent closed $1.54 lower at $107.76/bbl, widening its premium to WTI to $6.31/bbl from $5.97/bbl in the previous session. The Brent contract hit $112.39 on Monday – its highest since December 30, but it settled below the key 200-day moving average of $108.41/bbl on Wednesday.
Milder-Weather Forecasts Weigh on Natural Gas
U.S. natural gas futures ended down 3% on Wednesday on forecasts for milder weather and weaker heating demand. That followed a nearly 4% gain a day earlier. Despite those losses, the prompt month is still up about 7% since the year began. NYMEX-traded natural gas for April delivery settled down 14.4¢, or 3.1%, at US$4.523 per million British thermal units. Cold temperatures are expected to remain over the eastern half of the United States over the next 15 days, but less cold is expected than previously forecast. Elsewhere, early consensus estimates for the amount of gas utilities pulled from storage in the week to February 28 range from 119 billion cubic feet (Bcf) to 152 Bcf with an average of 137 Bcf, which is below the year-earlier draw of 149 Bcf and well above the five-year average draw of 105 Bcf. Utilities have withdrawn a record 2.486 trillion cubic feet (Tcf) of gas from storage since the start of the heating season in November – leaving just 1.348 Tcf in storage now, Bloomberg data shows. That is the lowest storage level for this time of year since 2004. Market observers noted that implied volatility on the NYMEX – a key component dealers use to price options – surged to 35.8 on Tuesday from 33.3 on Monday. Monday was the lowest level since the first full week of January.
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