Natural-gas futures drop 7% as weather forecasts dulls demand outlook
Oil futures settled higher on Tuesday, taking a cue from rallying equity markets and a weaker dollar as traders shook off a cut in the International Energy Agency’s forecast for 2021 crude demand.
Natural-gas futures, meanwhile, suffered their biggest one-day loss of 2021 on Tuesday, while also settling at their lowest level on the year to date, as the latest weather forecasts dulled the demand outlook for the heating fuel.
For oil, “the market has seemingly come to terms with a lackluster Q1, instead of choosing to focus on a more optimistic Q2 and second half of the year,” said Robbie Fraser, manager of global research and analytics at Schneider Electric, in a market update. “That optimism continues to hinge largely on large scale [COVID-19] vaccine deployment, which remains a vast logistical undertaking for each country.”
President-elect Joe Biden last week rolled out a $1.9 trillion coronavirus relief plan that includes cash payments to Americans and money for distributing COVID-19 vaccines.
On Tuesday, in testimony to the Senate Finance Committee, Janet Yellen, Biden’s pick to run the Treasury Department, said the best course for American economic policy is to “act big.”
The trend for oil prices continue to “prompt prices near multi-month highs, even as significant downside concerns remain,” said Fraser, noting that one of those concerns is highlighted in the latest report from the IEA.
The IEA on Tuesday cut its forecast for demand in 2021 by 280,000 barrels a day to 5.5 million barrels a day. The bleaker outlook focused mainly on the start of the year, with a 600,000-barrel-a-day cut to its forecasts for the first-quarter, and a 300,000-barrel-a-day cut to its forecasts for the second quarter.
The drop in Q1 demand is “due to a combination of surging case counts across much of the U.S. and Europe, as well as calls within China to limit travel for the Lunar New Year,” said Fraser. “Under normal circumstances, Chinese Lunar New Year sees more people travel than any other single event.”
West Texas Intermediate crude for February delivery CL.1, 1.34% CLG21, 1.34% rose 62 cents, or 1.2%, to settle at $52.98 a barrel on the New York Mercantile Exchange. March WTI crude CLH21, 1.23%, the most-actively traded contract, climbed by 56 cents, or 1.1%, to $52.98 a barrel. March will become the front-month contract at the end of Wednesday’s session.
March Brent crude BRN00, 0.79% BRNH21, 0.79%, the global benchmark, gained $1.15, or 2.1%, to end at $55.90 a barrel on ICE Futures Europe.
WTI gained ground last week, while Brent slumped 1.6%. There was no settlement for WTI on Monday when U.S. markets were closed for the Martin Luther King Jr. Day holiday.
WTI crude on Tuesday did not have catching up to do with Brent prices, “which gapped lower to start the week, but saw very limited movement over the course of Monday trading,” Fraser said.
Meanwhile, a weaker dollar can provide a boost to commodities priced in the U.S. unit, making them cheaper to users of other currencies. In Tuesday dealings, the ICE U.S. Dollar Index DXY, 0.05%, a measure of the currency against a basket of six major rivals, fell 0.3% to 90.505.
Back on Nymex, February gasoline RBG21, 0.68% tacked on 0.6% to $1.5381 a gallon and February heating oil HOG21, 0.23% added 0.4% to $1.5987 a gallon.
February natural gas NGG21, -2.75% settled at $2.546 per million British thermal units, dropping 7% on Tuesday. That was the biggest one-day loss and lowest front-month contract finish since late December, according to Dow Jones Market Data.
Natural-gas prices dropped as the National Oceanic and Atmospheric Administration forecasts “show that, although below-normal temperatures are expected across parts of the eastern and western U.S. throughout the last week of January, extreme, polar vortex-like conditions are unlikely,” said Christin Redmond, commodity analyst at Schneider Electric, in a note. “This has removed a good deal of near-term supply risk.”
Weekly data on U.S. petroleum supplies from the Energy Information Administration will be released on Thursday, a day later than usual because of Monday’s Martin Luther King, Jr. holiday.