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Crude oil futures rose for a fifth straight session Friday, recovering most of last week’s losses, while U.S. natural gas fell for the fifth consecutive day to settle at its lowest since September 2020.
Crude added to the 3%-plus gains in the previous session as Israel launched new air strikes in Gaza, with hopes for a ceasefire in the region fading at least for the near term, supported by tightening product supplies in the U.S. and elsewhere.
“Oil prices remain quite sensitive to the developments in the Middle East, and it appears as though nothing else matters too much,” Forex.com analyst Fawad Razaqzada wrote.
Front-month Nymex crude (CL1:COM) for March delivery settled +0.8% on Friday to $76.84/bbl, and front-month April Brent crude (CO1:COM) closed +0.7% Friday to $82.19/bbl, as both benchmarks jumped 6.3% for the week.
Meanwhile, front-month March Nymex natural gas (NG1:COM) finished Friday -3.6% to $1.847/MMBtu, plunging 11.1% for the week and ending at its lowest settlement value since September 22, 2020.
ETFs: (USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (NYSEARCA:UNG), (BOIL), (KOLD), (UNL), (FCG)
Analysts believe U.S. natural gas inventories currently are ~15% above normal levels for this time of year, as the combination of near-record production and warmer than usual weather and low heating demand so far this winter – aside from the mid-January freeze – has allowed utilities to leave more gas in storage.
Low prices typically encourage power generators to burn more gas instead of coal and cause producers to cut back on gas drilling, but with the retirement of dozens of coal plants in recent years, there’s not much coal left to replace.
On the production side, any reduction in gas drilling likely would be offset by increased associated gas production from oil wells as energy companies spend more to drill more oil wells with crude prices up ~7% YTD.
The collapse of natural gas prices has raised the oil-to-gas ratio – the level at which oil trades compared to gas – to more than 40-to-1, its highest since May 2012; on an energy equivalent basis, oil should trade at only a ~6x premium over gas.
The U.S. Energy Information Administration has projected gas production will rise to 104.37B cf/day in 2024 and 106.46B cf/day in 2025 from a record 103.75B cf/day in 2023.
While the EIA forecasts gas output in the biggest shale gas producing basins rising by just 2% Y/Y through the end of February in Appalachia and declining 3% in the Haynesville area, gas output in the Permian and Bakken shale oil producing basins are projected to have surged 12% and 13%, respectively, over the past year.
Oil and gas equities, as indicated by the Energy Select Sector SPDR (XLE), finished -0.2% for the week.
Top 3 gainers in energy and natural resources in the past 5 days: Brooge Holdings (BROG) +20.9%, Green Plains (GPRE) +20.7%, Foremost Lithium (FMST) +20.2%.
Top 3 decliners in energy and natural resources in the past 5 days: Atlas Lithium (ATLX) -14.5%, Nuscale Power (SMR) -14.3%, Sigma Lithium (SGML) -13.1%.
Source: Barchart.com