December 4, 2023
Falling prices on mainly energy commodities have principally been driven by the fundamental combination of soaring supply and lower consumption, raising serious sustainability concerns.
Crude futures lowered on strong US inventory buildup
- WTI crude futures weakened below $75, extending losses from the previous sessions and facing downward pressure from skepticism over voluntary oil output cuts by OPEC+ producers for the first quarter of next year.
- In the USA, the inventory increased for 6th consecutive week, reaching 449.66 million barrels (as of November 24th, 2023 EIA data). 35 million barrels have been added to crude oil stocks during the last 2 months.
- While OPEC+ members agreed to an additional 1 million barrel-a-day output reduction, individual members will announce their specific cuts. Saudi Arabia is expected to extend its own voluntary cut of 1 million barrels a day. Meanwhile, Brazil is set to join the alliance next year, planning to increase its output to 3.8 million barrels a day.
- These developments have raised significantly oversupply concerns leading to a challenging economic environment.
Gasoline prices under pressure amid lower consumption
- US gasoline futures fell to below $2.13 per gallon, retreating sharply from the one-month high of $2.28 touched on November 29th amid declining demand and steady supply.
- Gasoline stocks in the US soared by 1.76 million barrels in the week ending November 24th, the most in nearly two months, and sharply above market expectations of a 0.75 million barrel build.
- The development occurred as product supplied, one of the market’s favorite gauges for US gasoline demand, fell by 0.274 million barrels to 8.2 million.
- Among higher interest rates, volatile fossil fuel market dynamics, and increased work-from-home jobs, the results aligned with the latest forecasts that predict a 1% decline in US consumption.
Supply adds extra pressure on falling LNG prices
- US natural gas futures extended losses to trade slightly above $2.81/MMBtu for the first time since early September, due to abundant storage levels, record production and reduced demand.
- The latest US EIA’s report indicated a surprising buildup of 10 billion cubic feet in gas storage for the week ending November 24, contradicting market expectations of a 12 Bcf withdrawal. This contrasts starkly with last year’s 80 Bcf withdrawal during the same week and a five-year average decline of 44 Bcf.
- Additionally, weather forecasts indicate that temperatures are likely to remain warmer than usual at least until December 14th.
- Throughout November, natural gas decreased by about 26%, its largest monthly drop since January, when it plummeted by 40%, following a near 22% surge in October.