Oil prices mark a weekly loss on prospect of increased supply

By Myra P. Saefong and William Watts

Natural-gas futures settle nearly 7% higher for the week

Oil futures finished higher on Friday to modestly pare back their weekly loss from expectations OPEC+ will boost production before year-end.

Traders also cast doubt on whether an aggressive round of monetary stimulus from China will shore up demand from the world's largest crude importer.

Price moves

West Texas Intermediate crude CL00 for November delivery CL.1 CLX24 added 51 cents, or nearly 0.8%, to settle at $68.18 a barrel on the New York Mercantile Exchange. It marked a weekly drop of about 4% following two consecutive weekly gains.November Brent crude BRNX24, the global benchmark, added 38 cents, or 0.5%, to $71.98 a barrel on ICE Futures Europe, with prices down 3.4% for the week. The more actively traded December contract BRN00 BRNZ24 tacked on 45 cents, or 0.6%, to $71.54 a barrel.October gasoline RBV24 climbed 0.4% to $1.95 a gallon, ending 4.1% lower on the week, while October heating oil HOV24 lost 0.2% to $2.13 a gallon -1.3% lower for the week.Natural gas for November delivery NGX24 settled at $2.90 per million British thermal units, up 5.4% for the session - contributing to a weekly gain of 6.7%.

Market drivers

Crude oil on Friday pared back some of its losses for week. A Thursday selloff followed a Financial Times report, citing people familiar with Saudi officials' thinking, which said the kingdom was ready to throw in the towel on voluntary production cuts in December in a bid to reclaim market share.

Saudi Arabia and seven other members of OPEC+ - made up of the Organization of the Petroleum Exporting Countries and its Russia-led allies - had been set to begin unwinding some production cuts in October, but previously agreed to delay the move until December.

Fundamentally, the expected increase in production "could not come at a worse time," analysts at Sevens Report Research wrote in Friday's newsletter. Demand expectations have "faltered with recently volatile economic data and growing uncertainty about a recession, despite the factthat markets are tentatively penciling in a soft landing" for the second half of this year.

The current 2024 low close for WTI of just over $66 a barrel will "remain a key technical level to watch near term as any negative news regarding the health of the economy has the potential to put more pressure on oil," they said.

Attention will shift to a meeting of the OPEC+ Joint Ministerial Monitoring Committee next week, though it's unlikely to result in any major announcements, Helima Croft, head of commodity research at RBC Capital Markets, said in a note. She argued that the "direction of travel" is likely to depend on whether Iraq and Kazakhstan, which have overproduced, bring production back in line with assigned cuts.

"If these two producers make visible curtailments, we think Saudi Arabia and its regional partners will stick with the slow phase-in announced in June. However, if they fail to comply, we can envision a swifter sunsetting of the voluntary cuts," she said.

Phil Flynn, senior market analyst at the Price Futures Group, said that OPEC overproducers are "reining in overproduction and making good on promises to make compensation cuts on previous overproduction in the past."

So for Saudi Arabia to "start a production war now would be like punting on third down on the goal line. It would not make any sense," he said in his daily energy report. Yes, there will be an increase in production in December, but "as former OPEC cheaters make compensation cuts the increase will only reflect the seasonal uptick in oil demand and not substantially build global oil inventories."

Flynn said the net increase in output might only be about 300,000 to 500,000 barrels a day, and that "should keep us in a supply deficit and would not lead to any increase in global oil inventories."

Natural-gas futures, meanwhile, ended the session sharply higher. Unknowns at this time include when ports will reopen and how much damage has been done by high winds, flooding and storm surge from Hurricane Helene, said Beth Sewell, president and chief executive officer at Quantum Gas & Power Services.

The storm made landfall late Thursday as a Category 4 hurricane. As of Friday, the Interior Department's Bureau of Safety and Environmental Enforcement reported that 24.29% of the region's oil production and 18.46% of the area's natural-gas production were shut in because of the storm.

As natural-gas prices improve, "the market may start to see production rise over the coming month, along with demand loss tied to the rising prices - so balances could shift to a demand shortfall," Sewell said.

But a lot will "depend on winter weather," she said. "Time will tell."

-Myra P. Saefong -William Watts

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09-27-24 1511ET

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