Concerns over waning Chinese demand and potential future interest rate increases by the Federal Reserve caused oil to give up early Friday gains and was headed for a second weekly loss. COVID-19 cases have increased in China, which, according to sources, is looking to slow crude oil imports from some exporters, while hopes for a slowing of aggressive US rate hikes have been dashed by remarks from some Fed officials this week.
As of now, bullish price drivers are in short supply. Yet, with the EU embargo on Russian crude coming up in less than three weeks, oil prices could end the year with a bang. Brent crude had fallen 7 cents, or 0.1%, to $89.71 per barrel. West Texas Intermediate (WTI) crude in the United States rose 9 cents, or 0.1%, to $81.73.
Both indices are going for a second weekly loss. Brent should fall more than 6.12%, while WTI should fall 8.123%.
Recession worries have dominated this week despite the impending December 5 ban on Russian crude by the European Union and OPEC+ tightening supply. Since August, the premium of nearby Brent futures over barrels loading in six months has dropped as low as $4.28 per barrel, signaling a decrease in supply concerns.
The Fed should increase rates by 50 basis points at its policy meeting on December 13–14, following four straight 75-bp increases.
Oil Forecasters Have Different Views
The US Energy Information Administration (EIA) and the OPEC Secretariat are the three main international and national oil balance forecasting organizations. Their views on the dynamics of oil demand in 2023 remain opposites.
According to a new report sent to Rigzone, the EIA forecast for annual year-on-year demand growth in 2023 is 1.161 million barrels per day, which Standard Chartered analysts noted is 314,000 barrels per day less than the previous EIA estimate, and the IEA forecast is 1.6101 million barrels per day, which they noted is 40,000 barrels per day. Standard Chartered analysts provided their forecast for 2023 oil demand growth in a separate report sent to Rigzone last month. They noted that this figure was about 900,000 barrels per day lower than at the start of 2022.
The world’s second-largest economy’s demand for oil is being threatened by falling oil prices, which are occurring against a backdrop of dimming economic prospects and rising Covid cases in China that could lead to additional restrictions and lockdowns. Back below $90, Brent crude is testing the lows from mid-October and, if sustained, the tolerance of OPEC+.
Rising Natural Gas Costs
Entergy Mississippi generates almost 70% of its electricity from natural gas, whose cost has doubled in the previous 12 months.
The Mississippi Public Service Commission granted Entergy’s request to gradually implement these higher fuel costs over the subsequent six months, from November until April 2023, to lessen the impact.
Currently, a typical customer using 1,000 (kWh) of electricity per month will experience an increase of about $2 per month. The average residential customer’s bill will increase by about $12.
Demand should increase due to the colder temperatures, so the price of European spot electricity for Monday was lower than that of Friday.
After a chilly weekend, temperatures should warm up on Monday. Wind power should increase to more average levels as well.
At 1238 GMT, the German Monday delivery baseload contract was up 6.4% from Friday delivery, trading at 182 euros ($188.84) per megawatt-hour (MWh).
The comparable French agreement increased by 13.7% to 240 euros/MWh.
Germany’s demand should increase by 350 megawatts (MW) from Friday to 60.4 gigawatts (GW) on Monday, even though the average temperature should drop by 0.2 degrees Celsius to 5.3 Celsius.
The 100% filling rate of underground German gas inventories, which was reached this week and affected gas forward prices, was noted by the German procurement portal Ispex in a note.