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Post: Futures Movers: Oil prices move higher to kick off week ahead of Fed meeting

Oil futures moved higher Monday to start the week, with the U.S. benchmark remaining well below the $100-a-barrel threshold.

Price action
  • West Texas Intermediate crude for September delivery
    CL.1,
    +1.85%

    CL00,
    +1.85%

    CLU22,
    +1.85%

    rose $1.83, or 1.9%, to $96.53 a barrel on the New York Mercantile Exchange.

  • September Brent crude
    BRNU22,
    +1.67%
    ,
    the global benchmark, rose $1.87, or 1.8%. $105.07 a barrel on ICE Futures Europe. October Brent
    BRN00,
    +1.64%

    BRNV22,
    +1.64%
    ,
    the most actively traded contract, was up $1.76, or 1.8%, at $100.14 a barrel.

  • Back on Nymex, August gasoline
    RBQ22,
    +4.75%

    rose 4% to $3.3514 a gallon, while August heating oil
    HOQ22,
    +1.81%

    gained 2.7% to $3.5488 a gallon.

  • August natural gas
    NGQ22,
    +4.68%

    gained 3.7% to $8.606 per million British thermal units.

Market drivers

Oil futures have retreated sharply in July, with pressure tied in part to fears a sharp economic slowdown may be in the offing that would undercut demand.

The Federal Reserve is expected to deliver another 75 basis point rise in the fed-funds rate when it completes a two-day meeting on Wednesday. Investors worry the Fed’s aggressive tightening in an effort to rein in inflation running at its hottest in more than 40 years could push the economy into recession.

Read: The Fed could get lucky or things might go wrong. A guide to where the economy might go from here

Overall, however, “crude continues to trade between two major factors pulling prices in opposite directions,” said Robbie Fraser, manager, global research & analytics at Schneider Electric.

“On the bullish side, current supply/demand balances remain supportive,” he said in a market update. Storage levels are “low and provide little buffer to any further supply shock.”

“On the bearish side, rising recession fears and more hawkish central bank policies continue to create demand concerns,” Fraser said. “China continues to see additional risk from the potential impact of lockdown measures tied to the country’s zero COVID strategy.”

Rising inventories for gasoline have also weighed on crude, signaling that a previous jump to record prices had served to curtail demand.

Still, the futures market continues to signal tight crude supplies, with nearby contracts trading at a significant premium to later contracts. That phenomenon in Brent is largely driven by expectations that “plans for a price cap on Russian oil may have the opposite effect on oil prices than hoped for,” said Warren Patterson, head of commodities strategy at ING, in a note.

U.S. Treasury Secretary Janet Yellen has been advocating a plan that would cap the price paid for Russian oil in an effort to boost pressure on Moscow in response to the invasion of Ukraine.

“The governor of Russia’s central bank has said that Russia would not supply crude oil to any country which caps prices. Although the deputy prime minister had previously said that Russia would not supply oil if the cap was set below production costs,” Patterson said.

On the supply front, Libya’s National Oil Corp. on Saturday said crude-oil production was approaching 1 million barrels a day and could soon reach 1.2 million barrels a day.

Natural gas rally

Among energy futures, natural gas was a standout, climbing by nearly 4% in Nymex dealings Monday.

Hotter-than-usual weather throughout much of the U.S. has helped to boost demand for the commodity as a power source, analysts said.

Over in Europe, prices for Dutch TTF gas futures climbed by more than 10% to 176.40 euros per megawatt-hour.

Russian state-owned energy producer Gazprom said natural-gas exports through the vital Nord Stream pipeline to Germany would drop to 20% of the pipe’s capacity, down from the current 40% of capacity, The Wall Street Journal reported Monday. It blamed problems with a turbine, and the news raised new questions about Europe’s ability to meet gas demand for the winter.

A smaller-than-expected increase in domestic natural-gas supplies for the week ended July 15, meanwhile, led front-month U.S. natural gas to “extend upward momentum— with Sunday night’s move higher now reaching a startling” $3 per million Btus upswing in under three weeks, said Phil Flynn, senior market analyst at The Price Futures Group, in a Monday note.

“In the immediate term, the further upside appears likely ahead of August contract options expiration and final settlement midweek,” he said. The August natural-gas contract expires at the end of Wednesday’s trading session.

By early August, “a long-overdue test of support could lead to weakness as the September contract assumes the front-month role,” said Flynn.

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