Whiplash: energy markets start 2023 with biggest weekly dive in years

By Stephanie Kelly

NEW YORK, Jan 6 (Reuters) - Energy futures for crude oil, refined products and gas have plummeted in the year as traders reconsidered -term worries over cold weather and fears of supply shortages and dumped contracts.

Prices rose last year on worries of Europe freezing due to the loss of Russian fuel, as OPEC+ cut production targets and as critically low U.S. distillate stocks raised the prospect of fuel export curbs.

Those fears have proven overblown, driving prices down. European gas stocks are well above seasonal , Saudi Aramco this week cut prices for oil shipped to Asia, and OPEC members' output unexpectedly rose last month, a Reuters survey found.

Warmer-than-usual temperatures in the United States and Europe also have cut the for gas and oil for heating.

U.S. gas NGc1 tumbled about 18% in the first week of January, the biggest slide on record to start a year, according to Refinitiv Eikon data. The 12% drop in distillate futures HOc1, was the biggest dive to start a year since 1991. Distillate consumption typically rises on winter season demand.

U.S. West Texas Intermediate CLc1, Brent LCOc1 and U.S. gasoline futures RBc1 all had their biggest weekly decline to start a year since 2016, with WTI down 7.4%, Brent 7.3% and U.S. gasoline 7.3%.

NEWFOUND CAPACITY

"Some of our greatest fears in 2022 got realized," said John Kilduff, partner at Again Capital LLC in New York. While OPEC's spare capacity is limited, traders see additional supplies coming from Guyana, Brazil and Canada, he said.

The specter of recession raised questions about demand. Disappointing U.S. employment and manufacturing data, and rising COVID-19 cases in China have stoked fears of global recession, which would slash fuel demand.

Last week, China lifted its export refined products export quotas, signaling weaker domestic demand ahead.

Expectations that prices will recover have resulted in front-month prices for the U.S. and Brent crude benchmarks trading weaker to second-month contracts, a market structure known as contango. This incentivizes traders to buy and store fuel. CLc1-CLc2, LCOc1-LCOc2

Farther out, front-month U.S. crude contracts traded on Thursday as low as 56 cents less than prices in six months CLc1-CLc7, the widest discount since Dec. 12.

In gas, U.S. futures NGc1 fell further on Friday, dropping 5% to $3.52 per million British thermal units during the session, its lowest since July 2021.

"January 2023 is off to the warmest start in more than 15 years," analysts at energy consulting firm EBW Analytics told customers in a .

It is too early to tell whether prices will quickly recover. The oil curve may strengthen as demand recovers and as the market works through spare OPEC capacity, analysts at Goldman Sachs said.

The bank predicted Brent would average $90 per barrel in 2023, down from $110 earlier. This week, it forecast U.S. gas prices would drop to $4.00-$4.20 per million British thermal units in the second quarter through third quarter.

(Reporting by Stephanie Kelly; additional reporting by Scott DiSavino; Editing by David Gregorio)

((Stephanie.Kelly@thomsonreuters.com; 646-223-4471; Reuters Messaging: stephanie.kelly.thomsonreuters.com@reuters.))