In a January 4 Barchart article, I wrote:
The bottom line is crude oil will likely remain volatile in 2024 as markets reflect the economic and geopolitical landscapes, which are highly uncertain for the coming months. The tug-of-war between bulls and bears will continue in 2024, creating lots of trading opportunities for nimble market participants with their fingers on the pulse of the international oil market.
Nearby NYMEX WTI crude oil futures settled at $71.65 per barrel at the end of 2023, with the nearby ICE Brent futures at $77.04. The energy commodity has not run away on the upside, but active month WTI and Brent futures prices have increased over the first month of 2024.
A down year in 2023
Nearby NYMEX WTI futures and ICE Brent futures declined by 10.7% and 10.2%, respectively, in 2023.
The ten-year NYMEX WTI chart shows the drop from $80.26 at the end of 2022 to $71.65 at the end of 2023.
Brent crude oil prices declined from $85.91 to $77.04 per barrel over the same period.
Higher lows and higher highs in January 2024
In early 2024, Crude oil prices have been rising since late 2023. While they are not running away on the upside, the appreciation has been slow and steady.
Nearby March NYMEX WTI futures have moved 16.1% higher from the December 13 low of $68.28 to $79.29, the most recent high on January 29.
April Brent crude oil prices have rallied 15.2% from $72.97 in mid-December 2023 to $84.09 on January 29, 2024.
The offseason for gasoline demand ends over the coming months
Crude oil’s mid-December low came as seasonality weighed on the energy commodity. Gasoline is the most ubiquitous oil product, and demand tends to decline to seasonal lows during winter when drivers put fewer clicks on their car’s odometers.
The futures markets reflect seasonal changes weeks or a few months before they arrive. Spring and summer are the peak driving season when gasoline demand increases. In early February, the futures markets will begin to shift towards the anticipation of increasing gasoline demand during the coming months. Therefore, crude oil, the critical input in gasoline refining, should receive seasonal support, lifting prices over the coming weeks and months.
Geopolitical factors could cause an upside spike
The most significant factor for the crude oil market is the ongoing, spreading, and escalating conflict in the Middle East.
Tensions between the United States and Iran have reached a boiling point, with Iranian-backed attacks on the U.S. military in the region taking lives over the past week. Meanwhile, U.S. relations with Russia and Saudi Arabia remain strained. OPEC+ production policies are likely to keep petroleum prices elevated. Moreover, the hostilities between the U.S. and Iran could impact critical logistical routes in the Persian Gulf and the Straits of Hormuz, causing supply issues and sudden upside oil price spikes. The bottom line is that a tense geopolitical landscape will be bullish for crude oil in early 2024.
Crude oil is a leading debate topic in the 2024 U.S. election
Crude oil is the fossil fuel at the center of the stage in the 2024 U.S. Presidential election. The incumbent Biden administration favors continuing its policy addressing climate change through support for alternative and renewable fuels while inhibiting fossil fuel production and consumption. Former President Trump, the likely Republican nominee, and others in his party support energy independence through “drill-baby-drill” and “frack-baby-frack” policies for hydrocarbons. The November election will set the path of U.S. energy production and consumption for the coming four years. However, until then, prices will likely remain volatile because of the close election and the uncertainty of the outcome.
Crude oil prices rose to the highest level since 2008, reaching over $130 per barrel in 2022. While another rally to that level is unlikely, given the economic weakness in China, prices above $100 are possible as the Middle East remains a tinderbox of potential problems. Crude oil below $80 per barrel in early February 2024 has more upside potential than downside risk as the market is moving out of the weak demand season, and geopolitics remain highly volatile. Meanwhile, as the Biden administration continues to replenish the U.S. Strategic Petroleum Reserve, which declined from over 600 million barrels in late 2021 to 366.4 million as of late January 2024, solid support is below the market for the world’s leading energy commodity.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
