Natural gas in rally mode; oil heads toward 3-month low

Published: Nov 14, 2016 10:51 a.m. ET

WTI, Brent crude down as doubts over OPEC output deal

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Natural-gas futures climbed to their highest level in a week on Monday, as traders bet that weather will provide a boost in demand that will help work off record inventory levels of the fuel ahead of the peak winter heating season.

Oil futures, meanwhile, headed in the opposite direction—on track for their lowest close in three months as traders continued to cast doubts on the odds of a production cut later this month by the Organization of the Petroleum Exporting Countries.

December natural gas NGZ16, +5.38%  rallied by 12.6 cents, or 4.9%, to $2.747 per million British thermal units on the New York Mercantile Exchange. A settlement around this level would be the highest for the front-month December contract since Nov. 7.

Prices lost about 5.3% last week after the Energy Information Administration on Thursday reported that U.S. natural-gas supplies climbed to a record 4.017 trillion cubic feet for the week ended Nov. 4.

“Over the next two weeks, temperatures are expected to be above average across the country, which leaves expectations stable,” said Daniel Holder, commodity analyst at Schneider Electric.

“While in theory this would send a neutral or bearish message, prices are telling a different story, especially as we have begun to see the fall frosts finally arrive across many parts of the U.S.,” he said.

Oil decline

Also on Nymex, oil prices looked to extend their losses into a third-consecutive session.

December West Texas Intermediate crude CLZ6, -1.82% fell by 56 cents, or 1.3%, to $42.85 a barrel on Nymex. A settlement around this level would be the lowest since mid-August. January Brent crude LCOF7, -1.79%  on London’s ICE Futures exchange lost 53 cents, or 1.2%, to $44.22 a barrel, also set to finish at a three-month low.

Crude prices have been in retreat for weeks in the lead-up to the Nov. 30 OPEC meeting, as doubts intensified over the cartel’s ability to strike a deal. OPEC members had proposed capping output to between 32.5 million and 33 million barrels a day in a late September meeting in Algeria.

“The cartel really needs to show that the time of tinkering has to come to an end and show a united front, or live with the consequences that OPEC no longer has any power in controlling the oil supply,” said Naeem Aslam, chief market analyst at ThinkMarkets. “Iran and Iraq are both producing record amount[s] of oil and there is no sign that they are going to respect any quota system.”

Monthly reports released over the past couple of weeks have also showed that OPEC output in October reached an all-time high, with the International Energy Agency pegging that total at 33.83 million barrels a day.

At the same time, some analysts have said that Donald Trump’s victory in last week’s U.S. election makes a deal even less likely given the possibility of a revitalized domestic energy industry.

“The new dynamic of a highly favorable legislative and most likely fiscal environment for the U.S. upstream and midstream is a parameter that OPEC members would have not have factored in when the proposed cut was introduced,” analysts at BMI Research wrote in a note to clients. “We believe they will take a ‘wait-and-see’ approach during this meeting until the U.S. energy policies become clearer in 2017.”

Separately, data from China’s statistical agency released Monday showed another fall in Chinese crude production in October. The country produced 16.05 million tons, or about 3.8 million barrels a day, down 11% from a year ago. So far this year, China’s oil output has fallen 6.7%, due in large part to lower investment in aging fields.

Rounding out action in the energy market, December reformulated gasoline RBZ6, -1.85%  declined by 1.5 cents, or 1.1%, to $1.291 a gallon, while December heating oil HOZ6, -1.27%  shed just under a penny to $1.392 a gallon.