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WTI crude futures steadied near $85 per barrel on Friday but were still set to decline for the third straight week, as aggressive monetary tightening by major central banks and global recession fears dampened the demand outlook. A strong dollar also added downward pressure on energy prices as it makes commodities more expensive for buyers holding other currencies. Moreover, oil prices plummeted on Thursday after the US Department of Energy backtracked previous reports that the US would restock its emergency reserves should WTI prices drop below $80, removing the potential price floor for oil. On the supply side, China is considering allowing more fuel exports, which could be a sign of weak domestic consumption. Several investment banks have issued a dire outlook, with Standard Chartered Plc saying the global oil market swung into a “large surplus” this quarter, while Morgan Stanley and UBS Group AG slashed near-term forecasts on recession fears, Bloomberg reported.

US natural gas futures fell almost 9% to below $8.3/MMBtu, after US railroads and unions reached an agreement to avert a railroad strike that was expected to force generators to burn more gas to produce electricity. Prices surged 10% in the previous session, boosted by higher demand forecast and more coal-to-gas switching in case of the rail strike. About two-thirds of the nation's coal-fired power plants receive their coal by rail. Average gas output in the US Lower 48 states rose to 99.1 bcfd so far in September from a record 98 bcfd in August, according to data provider Refinitiv. Average US gas demand, including exports, is expected to decrease to 93.7 bcfd next week, above Refinitiv's outlook on Tuesday, amid cooler autumn weather. Meanwhile, Freeport LNG expects a sharp delay in the restart of its Quintana export plant to November, leaving more gas in the US for utilities to inject into stockpiles for next winter.

Gasoline futures extended gains to above $2.5 per gallon, the highest in two weeks, and moving further away from a 9-month low of $2.3 hit earlier in the month after the latest EIA data showed a bigger-than-expected draw in US gasoline inventories. Official government figures showed gasoline stocks in the US fell by 1.8 million barrels last week, compared with expectations for an 858,000-barrel drop.

Heating oil futures fell to $3.4 per gallon, the lowest in nearly five weeks after the latest EIA data showed US heating oil stocks increased by 39 thousand barrels last week, after a 724 thousand barrels fall in the previous period and compared to a 340 thousand decline a year earlier. Also, distillate stockpiles, which include diesel and heating oil, surged by 4.219 million barrels, the most since December 2021 and above forecasts for a 0.6 million rise. Distillate stocks have been at lower-than-usual levels due in part to heavy export demand from Europe, and profit margins are high as refiners try to meet consumption headed into winter heating oil use.

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