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Natural gas up on week; break from mid-$2 still looks hard

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Natural gas up on week; break from mid-$2 still looks hard
© Reuters.

Investing.com – rose on the week, spurred by higher power burns in the United States for this time of year as late-night warmth especially prodded Americans to crank up the cooling at home despite fall weather being just about a week away.

But the market’s nexus with mid-$2 pricing seemed a difficult bond to break.

At Friday’s close, the most-active October gas contract on the New York Mercantile Exchange’s Henry Hub settled at $ $2.6440 per mmBtu, or million metric British thermal units — down -6.4 cents, or 2.4% on the day.

For the week, October gas was up 3.9 cents, or 1.5%.

Power burns — a major determinant of natural gas pricing — totaled 42.1 billion cubic feet per day for the Sept. 8-14 week, up 6.3 bcf/d for the comparative week of a year ago.

For Sept. 14 alone — the last available day for reading — the power burn was up 6 bcf/d, standing at 39.8 versus the year ago reading of 33.8.

The surge in power burns was the clearest indication yet that lingering warmth from the waning days of summer was still helping drive consumption of natural gas although fall will officially begin on Sept. 23, said analysts.

Notwithstanding that bullish factor, the biggest weight on the market remained concerns that production could ramp up again with this year’s drop in gas rigs — which indicate future output — seeming to have bottomed out. Natural gas rigs rose by eight in the latest, data from energy services firm Baker Hughes showed.

— often the ultimate driver of pricing — remained up 16% on the year at 3.205 trillion cubic feet, despite a blistering summer of power burns.

The two have kept the Henry Hub’s most-active contract not far from the mid-$2 level which natural gas has been stuck at since the start of 2023 — with the occasional run to $3 or thereabout.

Commodities

Oil prices settle higher, but fall to heavy weekly losses on rate, demand jitters

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Investing.com– Oil prices settled higher Friday, but that did little to prevent heavy weekly losses Friday as concerns over sticky inflation and high interest rates spurred doubts that demand will remain robust this year. 

At 14:30ET (18:30 GMT), rose 1% to $82.14 a barrel, but posted losses of about 2% for the week. While rose 1.1% to $77.74 a barrel, but still slipped to a more than 2% loss for the week. 

Oil heads for weekly losses as rate jitters weigh 

Both contracts were set to lose around 4% this week, with Brent at its weakest level in two months and WTI at a three-month low. Pressure has come chiefly from concerns over sticky U.S. inflation and the potential for interest rates remaining elevated for a long time.

A string of signals from the Federal Reserve reflected increased anxiety among policymakers that inflation will be slow in reaching the central bank’s 2% annual target – a scenario that is expected to push the central bank into keeping rates high.

Analysts at Goldman Sachs have pushed back when they expect the Federal Reserve to cut interest rates this year, citing comments from central bank officials this week calling for more evidence that inflation in the world’s largest economy is sustainably cooling down to their 2% target.

In a note to clients on Friday, Goldman Sachs analysts said they now do not expect the Fed to roll out a rate cut until September. They had previously estimated that the reduction — which would be the first since the Fed embarked on a steep run of policy tightening in 2022 — would come in July.

The tool now shows a nearly equal probability of a cut or a hold in September.

Baker Hughes rig unchanged

Oilfield services firm Baker Hughes reported Friday its weekly U.S. rigs were unchanged at 497. The ongoing lull in drilling activity hasn’t done much to dent domestic output, which remains near record highs at 13.1 million barrels per day. That is above the average of 12.936 million barrels a day seen last year. 

In a trend that has stoked fears of non-OPOC-led oversupply, the U.S. has led global oil production for six years in a row. OPEC and its allies, OPEC+, have attempted to curb global supply through a agreements that seek to limit output of member countries. 

OPEC+ meeting in focus for more supply cues 

Markets were now looking to a meeting of the Organization of Petroleum Exporting Countries and allies (OPEC+), which is set for the start of June. 

Focus will be largely on whether the cartel will extend voluntary production cuts totalling about 2.2 million barrels per day past an end-June deadline.

These voluntary cuts from the cartel of major producers come on top of earlier reductions of 3.66 million barrels per day that were announced in various steps since late 2022 and which are valid until the end of 2024.

Total pledged cuts therefore currently amount to 5.86 million barrels per day, equal to about 5.7% of daily world demand.

But just how tight markets will be this year remains uncertain, especially as production remained at record highs. 

Some easing tensions in the Middle East also pointed to fewer supply disruptions for crude, while U.S. oil demand is expected to pick up in the coming weeks with the travel-heavy summer season. The Memorial Day weekend holiday usually marks the beginning of the season, with gasoline demand already seen picking up in the world’s biggest fuel consumer. 

(Peter Nurse, Ambar Warrick contributed to this article.)

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Commodities

Oil posts weekly loss as interest rate policy spurs fuel demand worries

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By Arathy Somasekhar

HOUSTON (Reuters) -Oil prices rose about 1% on Friday, but fell for the week on worries that strong U.S. economic data would keep interest rates elevated for a longer period, curbing fuel demand.

The July contract rose 76 cents to $82.12 a barrel. The more-active August contract closed up 73 cents at $81.84.

U.S. West Texas Intermediate (WTI) crude futures settled 85 cents, or 1.1%, higher to $77.72.

On Thursday, Brent closed at its weakest since Feb. 7 and U.S. WTI futures at their lowest since Feb. 23.

Summer demand in the United States is expected to pick up starting this weekend, and some investors are wondering if the selloff was exaggerated, said Dennis Kissler, senior vice president of trading at BOK Financial.

Brent closed down 2.1% for the week. It declined for four straight sessions this week, its longest losing streak since Jan 2. WTI settled down 2.8% for the week.

Worries over Federal Reserve interest rate policy and last week’s bump in US crude oil inventories weighed on market sentiment, said Tim Evans, an independent energy analyst.

Minutes of the Fed’s latest policy meeting released on Wednesday showed policymakers questioning whether interest rates were high enough to tame stubborn inflation. Some officials were willing to raise borrowing costs again if inflation surged.

Fed Chair Jerome Powell and other policymakers have since said they feel further increases are unlikely.

Higher interest rates increase the cost of borrowing, which can slow economic activity and dampen demand for oil.

Consumer sentiment also fell to a five-month low on mounting fears about borrowing costs staying high. At face value, pessimism among households would imply slower consumer spending, though the relationship between the two has been weak.

Oil demand is still robust from a broader perspective, analysts at Morgan Stanley wrote in a note, adding they expect total oil liquids consumption to increase by about 1.5 million barrels per day this year.

Soft U.S. gasoline demand has been offset by global demand, which surprised to the upside, especially in the early parts of the year, the analysts said.

U.S. gasoline product supplied, a proxy for demand, reached its highest level since November in the week to May 17, the Energy Information Administration (EIA) said on Wednesday.

On the supply side, the oil rig count, an early indicator of future output, was unchanged at 497 this week, energy services firm Baker Hughes said.

Meanwhile, the market is awaiting a June 2 online meeting of the OPEC+ producer group comprising the Organization of the Petroleum Exporting Countries and its allies to discuss whether to extend voluntary oil output cuts of 2.2 million barrels per day.

Analysts largely anticipate that current production cuts will be extended at least to the end of September.

Russia, in a rare admission of oil overproduction, said this week it exceeded its OPEC+ production quota in April for “technical reasons,” a surprise that analysts and industry sources say shows Moscow’s challenges in curbing output.

© Reuters. FILE PHOTO: A tug boat pushes an oil barge through New York Harbor in New York City, U.S., May 24, 2022.  REUTERS/Brendan McDermid/File Photo

Venezuela aims to produce 1.23 million barrels per day (bpd) of oil in December, adding about 290,000 bpd compared to the start of the year, following the addition of drilling rigs, oil minister Pedro Tellechea said.

Money managers raised their net long futures and options positions in the week to May 21, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

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Commodities

Morning bid: Fed fears overwhelm AI theme, gold recoils

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A look at the day ahead in U.S. and global markets from Mike Dolan

And then there was one.

In an extraordinary turnabout in just five months, financial markets now fully price just one quarter-point interest rate cut from the Federal Reserve this year – compared to the six built into futures prices at the start of 2024.

The good news is that’s largely down to the sheer strength of the ongoing U.S. expansion – the bad news is that very strength makes it harder for the Fed to see inflation hitting its target and keeps it hesitating on a first rate cut.

Thursday’s reversal of fortunes on Wall St reflected all that clearly, with surprisingly strong business and labor market updates seeding the worst day of the month for despite Nvidia (NASDAQ:)’s near 10% surge on another blowout earnings report infused by the artificial intelligence boom.

Even though the broader tech sector ended the day higher, the 10 other major stock sectors were left in the red. And the equal-weighted S&P500 lost 1.4%.

Fed fears 1 – AI 0.

With just 35 basis points of Fed easing now priced for the year, two-year Treasury yields climbed back to within 4bps of the 5% threshold. The dollar jumped back to its best level since mid May and that in turn triggered a reversal in lofty gold prices – clocking their worst day in month and worst week of the year.

The bounced back more than a point from pre-pandemic lows.

A so-called “bear-flattening” of the yield curve saw the inversion of the 2-10 year yield gap deepen to its most negative this year – with yields at both tenures rising but short rates up by more.

The yield curve has been inverted for almost two years solid now and its reliability as a harbinger of recession has been shot to bits – underscoring the peculiarity of this particular cycle and how the Fed may be struggling to cool it down.

Ahead of the U.S. Memorial Day holiday on Monday, all the major price indicators have given back a bit of Thursday’s moves – with up 0.2% ahead of the bell and both Treasury yields and the dollar off a touch.

But the Fed rate jitters rippled across the world overnight, with bourses in Tokyo, Seoul, Hong Kong and Shanghai losing more than 1% on Friday.

China’s ongoing military exercises around Taiwan have not helped investor confidence.

Europe’s two-day loss continued – with regional interest rate and political concerns of its own.

Even though the European Central Bank is still nailed on to deliver its first rate cut next month, unexpected strength in May business readings and a surprising acceleration of negotiated wage settlements in the first quarter have dragged market pricing for full-year ECB easing back below 60bp.

The rethink of the Bank of England’s trajectory this week has been even more dramatic as sticky UK inflation readings combined with news of a snap election for July 4.

Although Friday’s data showed UK retail sales plunging far more than forecast last month, money markets have wiped out chances of a BoE cut next month and now only see a 1-in-3 chance of a move in August.

Sterling, whose broader trade-weighted index is back up at 8-year highs to pre-Brexit referendum levels, recaptured some of Thursday’s losses against the dollar.

Elsewhere, traders monitored the G7 finance meeting in Italy and a Friday speech from Fed governor Chris Waller in Iceland.

In company news, a 7.55% tumble in Boeing (NYSE:) on Thursday after the U.S. planemaker forecast negative free cash flow in 2024 accounted for over 90 points to the downside for the blue-chip .

Ticketmaster-owner Live Nation slumped almost 8% after the U.S. Justice Department along with a group of 30 states and the District of Columbia Thursday sued to break up the concert promoter.

In Europe on Friday, shares of Renault (EPA:) rose 4% after the French carmaker announced a share buyback plan. And Britain’s National Grid (LON:) regained nearly all of Thursday’s 10% plunge on plans to raise about 7 billion pounds ($8.9 billion) in a rights issue.

Abrdn shares slipped after the UK fund manager’s CEO Stephen Bird stepped down.

Key diary items that may provide direction to U.S. markets later on Friday:

* U.S. April durable goods orders, University of Michigan’s final May household survey reading

* G7 finance ministers and central bank Governors meet in Stresa, Italy

© Reuters. AI (Artificial Intelligence) letters and robot hand are placed on computer motherboard in this illustration taken, June 23, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

* Federal Reserve Board Governor Christopher Waller speaks

* U.S. corporate earnings: Workday (NASDAQ:)

(By Mike Dolan, editing by Nick Macfie mike.dolan@thomsonreuters.com)

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