February WTI crude oil (CLG24) on Wednesday closed up +2.32 (+3.30%), and Feb RBOB gasoline (RBG24) closed up +6.32 (+3.02%).
Crude oil and gasoline prices recovered from early losses Wednesday and rallied sharply on supply disruptions in Libya and increased tensions in the Middle East. Crude prices Wednesday initially fell to a 3-week low after the dollar index rallied to a 2-1/2 week high and as stocks fell sharply, curbing optimism about the economic outlook.
Crude prices jumped Wednesday on concerns about tighter global crude supplies after Libya said it was shutting down its Sharara oil field after protestors entered the facility. The Sharara oil field is Libya's largest and pumps about 300,000 bpd.
Geopolitical risks in the Middle East have escalated and are bullish for crude prices. On Sunday, the U.S. Navy sank three Houthi boats in the Red Sea after they fired on U.S. aircraft. Also, Iran dispatched a warship into the Red Sea, increasing the risks of a direct U.S.-Iran military mishap. The attacks on commercial shipping in the Red Sea have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies. At least thirty merchant ships have been attacked or approached around Yemen by Iranian-backed Houthi militants in the Red Sea since Israel's war with Hamas broke out in October.
Wednesday's global economic news was bearish for energy demand. The U.S. Dec S&P manufacturing PMI rose +0.7 to 47.4, marking the fourteenth consecutive month that U.S. manufacturing activity has been in the sub-50 contraction range. Also, the Nov JOLTS job openings unexpectedly fell -62,000 to a 2-1/2 year low of 8.790 million, showing a weaker labor market than expectations of an increase to 8.821 million. In addition, the German Dec unemployment rate rose +0.1 to a 2-1/2 year high of 5.9%.
An increase in Russian crude oil exports is bearish for crude oil prices. Tanker-tracking data from Vortexa monitored by Bloomberg shows the four-week average of refined fuel shipments from Russia climbed to 3.46 million bpd in the four weeks to Dec 31, up +230,000 bpd from the prior week and the highest since July.
A decline in crude in floating storage is bullish for prices. Monday's weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -16% w/w to 77.39 million bbl as of Dec 29.
A bearish factor for crude was the announcement from Angola on Dec 21 that it is leaving OPEC amid a dispute over oil production quotas. Angola is Africa's second-largest crude producer, and the rift between Angola and other OPEC+ members is a bearish factor that signals infighting among members. Other OPEC members may balk at Saudi Arabia's attempt to force all members into a production cut.
On Nov 30, OPEC+ agreed to cut crude production by -1.0 million bpd through June 2024. However, crude prices sold off on the news since no details were provided on how the cuts would be distributed among members, nor how Russia's -300,000 bpd export cut would factor into the new totals. Delegates said the final details of the new accord, including national production levels, would be announced individually by each country rather than in the customary OPEC+ communique. The market was disappointed that the extra cuts in OPEC crude output will be announced by each individual country, which suggests the reductions are only voluntary.
Saudi Arabia said on Nov 30 that it would maintain its unilateral crude production cut of 1.0 million bpd through Q1-2024. The move would maintain Saudi Arabia's crude output at about 9 million bpd, the lowest level in three years. Russia also said it will deepen its voluntary oil export cuts by 200,000 bpd to 500,000 bpd in Q1 of 2024. OPEC Dec crude production fell -40,000 bpd to 28.050 million bpd.
The consensus is for Thursday's weekly EIA crude inventories to fall by -3.0 million bbl.
Last Thursday's EIA report showed that (1) U.S. crude oil inventories as of Dec 22 were -1.9% below the seasonal 5-year average, (2) gasoline inventories were -2.3 below the seasonal 5-year average, and (3) distillate inventories were -9.3% below the 5-year seasonal average. U.S. crude oil production in the week ending Dec 22 was unchanged w/w at a record 13.3 million bpd.
Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Dec 29 rose by +2 rigs to 500 rigs, just above the 1-3/4 year low of 494 rigs from Nov 10. The number of U.S. oil rigs in the past year has fallen from the 3-1/2 year high of 627 rigs posted in December 2022.
On the date of publication, Rich Asplund 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.
