Futures Movers: Oil prices log first loss in 6 sessions

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Oil futures settled with a loss on Tuesday, their first in six sessions, as Brent crude eased back from intraday highs above $80 a barrel — the global benchmark’s highest prices in almost three years.

Weeks of declining U.S. crude inventories and recent supply outages prompted prices for U.S. and global benchmark oil to climb to their highest settlements since October 2018 on Monday, but losses in the stock market and a drop in U.S. consumer confidence raised concerns about near-term energy demand.

Meanwhile, natural-gas prices pared some of their earlier gains, but still marked another finish at the highest in over seven years on tight U.S. supplies.

The “risk-off money flows” that hit the U.S. stock market on Tuesday also dragged crude and other industrial commodities prices lower, Tyler Richey, co-editor at Sevens Report Research, told MarketWatch. The “rather soft” consumer confidence report released this morning didn’t help the demand outlook either, he said.

November Brent crude

fell 44 cents, or nearly 0.6%, to settle at $79.09 a barrel on ICE Futures Europe after trading as high as $80.75. December Brent

the most actively traded contract, lost 37 cents, or 0.5%, at $78.35 a barrel.

November West Texas Intermediate crude

the U.S. benchmark, declined by 16 cents, or 0.2%, to settle at $75.29 a barrel on the New York Mercantile Exchange.

“With Brent briefly topping $80 a barrel, it looks like investors are realising that oil prices have gotten too strong,” Fawad Razaqzada, market analyst at ThinkMarkets told MarketWatch. “It is difficult to justify such prices when stagflation risks are on the rise and there is the potential for OPEC+ to ramp up its production.”

Prices started to ease back after a reading on U.S. consumer confidence for September from the Conference Board revealed a decline to 109.3 in September, the lowest in seven months.

“There are clearly larger macroeconomic developments weighing on crude prices,” said Troy Vincent, market analyst at DTN. Tuesday’s Intraday price action shows the “ongoing tug-of-war between the bullish influence of OPEC’s slow return of barrels…recent unexpected crude production outages…the bearish influence of a global economy…expecting weakening Chinese economic growth and the Federal Reserve to begin to taper its bond purchases.”

Strength in the U.S. dollar also will likely continue, Vincent said, providing a headwind for dollar-denominated prices of oil in the coming months.

Oil prices also could “be more sensitive to OPEC developments and winter weather outlooks as we move through Q4 given that the worldwide shortage of heating fuels is already leading to stronger prices of oil products like kerosene,” Vincent told MarketWatch.

Still, concerns about tightening supplies are evident in spreads between nearby and later-dated futures contracts. A growing premium for nearby contracts, known as backwardation, reflects demand for available barrels. The premium for December 2021 Brent crude over the December 2022 contract had risen to as much as $7 a barrel versus $4 in August, noted Warren Patterson, head of commodities strategy at ING, in a note.

“A growing backwardation along the curve reinforces the view of a tightening market,” he said.

Reports also have indicated that the Organization of the Petroleum Exporting Countries and its allies have struggled to boost production after previously agreeing to relax production curbs in monthly increments beginning in August.

OPEC+ is under growing pressure to “expand its oil supply to a greater extent so as to alleviate the tight supply. One opportunity to do this will come next week when the OPEC+ oil ministers take decisions about future production,” said Carsten Fritsch, analyst at Commerzbank, in a note.

In an annual report released Tuesday, OPEC said demand for energy will continue to rise in the long term, led by renewable energy sources, but coal is likely to see demand decline from 2020 to 2045.

Natural-gas prices on Tuesday extended a surge, with the front-month October contract

up 2.4% at $5.841 per million British thermal units, after touching a high at $6.28. The most-active November contract

which became the front month at the end of the session, added 2.6% to $5.88.

Soaring natural-gas prices in Europe are leading to fears of a broader energy crisis.

Read: The surge in European gas prices is tied to the Asian shortfall in coal supply, strategist says

Rounding out action on Nymex, October gasoline

lost 1% to $2.202 a gallon and October heating oil

fell 0.3% to $2.289 a gallon.

Traders await weekly data on U.S petroleum supplies due Wednesday from the Energy Information Administration. On average, analysts polled by S&P Global Platts expect to see a decline of 4.5 million barrels for domestic crude inventories for the week ended Sept. 24, along with a climb of 700,000 for gasoline and a fall of 2.2 million barrels for distillate stockpiles.

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