Hardest hit was the energy sector as reports began pointing to a 3 million barrels/day drop in Chinese demand. The combined net-long in WTI and Brent crude oil slumped by 94k lots on top of the 83k lots that was sold the previous week. At 484k lots the combined long was still 195k lots above the low last October when Brent reached a $56.15/b low. It closed on Friday at $54.5/b.
With this in mind the market will be paying close attention to continued efforts from the OPEC+ group of producers. While a 600,000 barrels/day cut was discussed last week in Vienna some uncertainty exists with regards to whether Russia will be prepared to join this effort. Failure to do so could potentially unleash another wave of long liquidation given the risk of sub-50 dollar Brent.
Slumping natural gas prices in Europe and Asia kept US prices under pressure as well. The combined net-short of four Henry Hub deliverable contracts (futures and swaps) reached a fresh record of 298k lots, almost 400k lots below the five-year average.
For natural gas producers a slowdown in demand from China could not happen at a worse time with global inventories already elevated following a mild Northern Hemisphere winter. In Europe, the Dutch TTF contract dropped to the lowest since August 2009 while in Asia the Japan/Korea LNG (Liquified Natural Gas) contract hit a record low at $3/MMBtu.
All of this being bad news for an already depressed U.S. natural gas market where robust production growth has increasingly been relying on exports through LNG to curb inventories.