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Futures Movers: U.S. oil prices settle lower, holding below $100 on signs of a demand slowdown

Oil futures settled lower on Friday, pressured by signs of faltering gasoline demand in the middle of summer driving season, with U.S. prices holding below $100 a barrel but the front-month September contract posting a weekly gain.

Price action

West Texas Intermediate crude for September delivery
CL00,
-1.76%

CL.1,
-1.76%

CLU22,
-1.76%

fell $1.65, or 1.7%, to settle at $94.70 a barrel on the New York Mercantile Exchange. Prices finished nearly 3% below the week-ago $97.59 settlement of the previous front-month August contract. The September contract, which became the front month at the end of Wednesday’s trading session, ended roughly 0.1% higher for the week, according to Dow Jones Market Data.

September Brent crude
BRNU22,
,
the global benchmark, lost 66 cents, or 0.6%, to $103.20 a barrel on ICE Futures Europe, ending 2% above the front-month finish of $101.16 a week ago. October Brent
BRN00,
-0.10%

BRNV22,
-0.10%
,
the most actively traded contract, fell $1.10, or 1.1%, at $98.38.

Back on Nymex, August gasoline
RBQ22,
+1.80%

added 2.3% to $3.2228 a gallon, with prices up 0.3% for the week, while August heating oil
HOQ22,
-4.36%

lost nearly 3.8% at $3.4556 a gallon — down 6.6% from a week ago.

August natural gas
NGQ22,
+4.93%

rose 4.6% to $8.299 per million British thermal units, ending the week more than 18% higher.

Market drivers

“Demand destruction is finally happening,” with Energy Information Administration numbers showing gasoline demand getting softer, said Tariq Zahir, managing member at Tyche Capital Advisors.

Energy Information Administration data released on Wednesday showed U.S. gasoline inventories unexpectedly rose 3.5 million barrels last week versus forecasts for a rise of 400,000 barrels. Moreover, the rise came despite a cut in refinery runs to 93.7% last week from 94.9% a week earlier.

“The slide in RBOB gasoline, and concerns around gasoline demand destruction, is also putting pressure on crude oil. If refiners don’t need to make gasoline, then they don’t need feedstock crude oil to make gasoline,” said Robert Yawger, executive director of energy futures at Mizuho Securities, in a note.

Worries about an economic recession have also dulled prospects for energy demand.

“Weak economic data continue to be a key bearish driver in the market,” said Christin Kelley, senior commodity analyst at Schneider Electric, in a note.

Eurozone PMI data released Friday showed a contraction in European business activity in July, “feeding fears that a recession may be on the horizon.” Also, the European Central Bank raised interest rates for the first time in 11 years on Thursday. “This serves as another sign of how major economies are struggling to battle runaway inflation, further stoking recessionary fears in the market,” said Kelley.

In the U.S. Friday, PMI data for July revealed a fall to a 26-month low of 47 from 51.6 in the prior month, based on a “flash” survey from S&P Global Market Intelligence.

But analysts said worries about tight global supplies were likely to limit downside for crude.

Oil prices will be “extremely volatile and…regain $100 in the short term,” Zahir said, adding that “we do feel risk is to the upside as we are in [Atlantic] hurricane season,” which can disrupt energy supplies in the Gulf of Mexico region.

President Joe Biden’s visit late last week to Saudi Arabia didn’t spur any immediate pledges to boost production, and analysts see limited scope for the country to significantly increase output.

A persistently tight market “with limited spare capacity continues to put a floor under falling prices. Tensions over Russia continue to loom, and the U.S. and the EU are considering a possible oil price cap,” said Stephen Innes, managing partner at SPI Asset Management, in emailed comments.

Meanwhile, natural-gas futures posted a more than 18% gain for the week, buoyed by a smaller-than-expected weekly climb in U.S. supplies of the fuel, as well as unusually hot weather in many parts of the nation.

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