February WTI crude oil (CLG24) on Wednesday closed down -0.87 (-1.20%), and Feb RBOB gasoline (RBG24) closed down -0.95 (-0.46%).
Crude oil and gasoline prices Wednesday erased an early rally and closed moderately lower. Crude prices retreated after weekly EIA crude inventories unexpectedly rose, and gasoline and distillate supplies rose more than expected, indicating weak energy demand. Crude prices Wednesday initially jumped after Houthi rebels carried out one of their largest missile and drone attacks on commercial shipping lanes in the Red Sea, potentially disrupting global crude supplies.
Crude prices Wednesday initially moved higher after Houthi rebels launched one of their biggest attacks to date on commercial shipping lanes in the Red Sea. The U.S. Central Command said eighteen drones, two anti-ship cruise missiles, and one anti-ship ballistic missile were shot down by allied forces late Tuesday in the Red Sea.
Geopolitical risks in the Middle East have escalated and are bullish for crude prices. Attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies. U.S. Secretary of State Blinkin on Tuesday said there would be "consequences" for the Houthis if they continued to assault ships.
Crude has support on tighter global crude supplies after Libya's National Oil Corporation on Sunday declared force majeure at its Sharara oil field that was shut down last Wednesday after protestors entered the facility. The Sharara oil field is Libya's largest and pumps about 300,000 bpd.
A decrease in Russian crude oil exports is supportive of crude oil prices. Tanker-tracking data from Vortexa monitored by Bloomberg shows the four-week average of refined fuel shipments from Russia fell to 3.34 million bpd in the four weeks to Jan 7, down -120,000 bpd from the prior week.
A bearish factor for crude was Monday's action by Saudi state producer Saudi Aramco to cut the official selling price of its Arab Light crude by -$2.00 to $1.50 above the benchmark for customers for February delivery, a larger cut than expectations of -$1.25 a barrel and the lowest in more than two years.
An increase in crude in floating storage is bearish 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 -2.1% w/w to 83.69 million bbl as of Jan 5.
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.
Wednesday's weekly EIA report was mainly bearish for crude prices. EIA crude inventories unexpectedly rose +1.34 million bbl versus expectations of a -150,000 bbl draw. Also, EIA gasoline supplies rose +8.03 million bbl to a 22-month high, a larger build than expectations of +2.13 million bbl. In addition, EIA distillate stockpiles rose +6.53 million bbl to a 28-month high, above expectations of +1.76 million bbl. On the positive side, crude supplies at Cushing, the delivery point of WTI futures, fell -506,000 bbl.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Jan 5 were -2.1% below the seasonal 5-year average, (2) gasoline inventories were +1.4 above the seasonal 5-year average, and (3) distillate inventories were -3.3% below the 5-year seasonal average. U.S. crude oil production in the week ended Jan 5 was unchanged w/w at 13.2 million bpd, just below the recent record of 13.3 million bpd.
Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Jan 5 rose by +1 rig to 501 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.
