Written on: January 10, 2023

Energy Price Report

Tuesday, January 10, 2023

Energy prices are trading flat to higher as of this writing on Tuesday, despite weakness in stock markets and strength in the US dollar index following some hawkish comments from Federal Reserve officials and talk of a G7 price cap on Russian oil products.

Reuters reports that the G7 coalition of Australia, Canada, Japan, the US, and the 27 countries making up the European Union, is looking to set price caps on Russian refined products next month. One would cap the price of refined products trading at a discount to crude oil and the other would cap the price for products trading at a premium to crude oil. The EU is currently set to ban the importation of Russian refined products beginning February 5, and if this price cap serves as an exemption for that ban – as is the case currently for Russian crude and its EU price cap – this could prove less disruptive to the market depending on the levels at which the price caps are set.

Japanese household spending contracted by 0.9% in November, worse than the 0.4% expected decline. The Nikkei rallied 0.78%, however, as the Tokyo Stock Exchange had been closed for a holiday yesterday. The Shanghai Composite added 0.38%, while the Hang Seng shed 0.27%. French industrial production growth of 2.0% in November far exceeded the 0.8% forecast, but the CAC 40 was down by 0.7% as of this writing. The German DAX had lost 0.5% and the FTSE 100 in the UK was off by 0.3%. In US news, Atlanta Fed Bank President Bostic said he wants the US to “eventually…get to 25” basis point rate hikes, with timing being data-dependent, and San Francisco Fed President Daly said rate hikes of 25 or 50 basis points are “on the table” for her at the next FOMC meeting, with both officials seeing a need to increase rates by another 75 basis points or so in order to tame inflation. Dow and S&P 500 futures were down by 0.5% and Nasdaq futures had lost 0.7% this morning. Also unsupportive for crude, the US dollar index was up by 0.4%.

Energy markets strengthened across the board yesterday, with gains of between 1.0% (heating oil) and 2.2% (gasoline) amid gains in stock market indexes, a relaxation of Chinese coronavirus-related restrictions and depreciation in the US dollar against a basket of currencies. WTI crude gained 86 cents, settling at $74.63 a barrel, Brent crude climbed $1.08 higher to close at $79.65 a barrel, gasoline prices strengthened by 4.83 cents for a $2.2929 per gallon settlement, heating oil settled 3.15 cents higher at $3.0360 per gallon and natural gas futures posted a 5.4% gain yesterday.

Analysts see the market loosening up some next week, however, and the 1-5, 6-10, and 11-15 day outlooks based on the European model continue to call for above-normal temperatures across most of the country, including the Midwestern and Northeastern consuming regions.