WTI crude futures steadied around $121 per barrel on Tuesday, as a still tight global oil market countered fears over a possible recession and potential new Covid curbs in China that threatens to hit demand. A drop in Libyan oil exports amid a political unrest that has hit output and ports exacerbated supply tightness, at a time other OPEC+ producers are struggling to meet their output targets and Russia is facing bans on its oil over the war in Ukraine. On the demand side, a Covid outbreak at a bar in Beijing stoked fears of fresh lockdowns just as restrictions were being eased. Investors are also weighing the impact of a possible recession on energy demand, with elevated inflation readings likely to push the Federal Reserve to consider a bigger 75 basis point rate hike this week. Meanwhile, markets await weekly US inventory data from the API on Tuesday and EIA on Wednesday for clues on how tight crude and fuel supply remain.
US natural gas futures steadied around $8.6 per million British thermal units, following two straight sessions of losses, as traders assessed stronger cooling demand and the impact of the Freeport LNG terminal explosion on the domestic market. The National Weather Service issued an excessive heat warning for six states and heat advisories to twenty states at the start of the week, which should boost power demand for cooling. Still, the recent explosion at a major Texas LNG terminal is expected to leave an additional 40 bcf of natural gas available in the domestic market, as the facility is set to remain offline for at least three weeks. The extra supplies could allow utilities to narrow the gap between current inventory levels and the 5-year average, which has been one of the forces behind the rally in natural gas futures this quarter.
Gasoline futures slipped to $4 a gallon, mirroring weakness in crude oil futures, as recession woes and growing pressure from a rally in the greenback more than offset bullish market tightness. Still, prices remained close to a record high of $4.33 reached on June 6th, with much of the support coming data pointing to the lowest inventory levels since 2015 and a strong start to the summer driving season. The EIA is expecting US gasoline consumption from April to September to climb almost 1% this year. At the same time, according to the International Energy Agency, total demand is estimated to rise by 1.3% this year.
Heating oil futures traded near $4.3 a gallon, close to an all-time high of $4.51 hit on June 10th, as traders continue to assess the tightness of domestic inventory levels against a backdrop of supply risks and a strengthening greenback. The latest EIA weekly report showed a 2.6 million barrel injection of distillate fuels, which include heating oil, in underground storage, but overall stocks still remained at their lowest levels since 2005. Adding to the stress, refineries are producing less heating oil than before the pandemic and demand is quickly outpacing supply. Elsewhere, the EU also has tight inventory levels of distillate fuels and the bloc’s embargo on Russian oil and oil derivatives means that American buyers are facing more competition in global markets.