February WTI crude oil (CLG24) on Thursday closed up +1.52 (+2.09%), and Feb RBOB gasoline (RBG24) closed up +4.81 (+2.25%).
Crude oil and gasoline prices Thursday closed sharply higher. Thursday's better-than-expected U.S. economic news was positive for energy demand and crude prices. Also, heightened geopolitical risks in the Middle East are lifting crude prices as the U.S. military targeted 14 Houthi missile launch sites overnight in Yemen as Houthi rebels continue to attack ships in the Red Sea off Yemen's coast. Gains in crude accelerated after weekly EIA crude inventories fell more than expected.
Thursday's U.S. economic news was mostly better than expected and supported energy demand and crude prices. Weekly initial unemployment claims unexpectedly fell -16,000 to a 16-month low of 187,000, showing a stronger labor market than expectations of 205,000. Also, Dec housing starts fell -4.3% m/m to 1.460 million, stronger than expectations of 1.425 million. In addition, Dec building permits, a proxy for future construction, rose +1.9% m/m to 1.495 million, stronger than expectations of 1.477 million. On the negative side, the Jan Philadelphia Fed business outlook survey rose +2.2 to -10.6, weaker than expectations of -6.5.
The recent series of hostile incidents in the Red Sea against commercial shipping is bullish for oil prices. Last Friday, the U.S. Navy advised vessels to avoid the southern Red Sea. Houthis started attacking ships in the Red Sea in mid-November in support of Hamas in the Israeli-Hamas war and said they won't stop the attacks until Israel ends its assault on Gaza. 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.
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 rose to 2.77 million bpd in the four weeks to Jan 14, up +53,000 bpd from the prior week.
Crude oil prices have support from tighter global crude supplies after Libya's National Oil Corporation declared force majeure on Jan 7 at its Sharara oil field, which was shut down on Jan 3 after protestors entered the facility. The Sharara oil field is Libya's largest and pumps about 300,000 bpd.
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 -14% w/w to 75.76 million bbl as of Jan 12.
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.
Thursday's weekly EIA report was mixed for crude oil and its products. On the bullish side, EIA crude inventories fell -2.49 million bbl, a larger draw than the expectations of -850,000 bbl. Also, crude supplies at Cushing, the delivery point of WTI futures, fell -2.1 million bbl. On the bearish side, EIA gasoline stockpiles rose +3.08 million bbl to a 2-year high, a larger build than expectations of +2.5 million bbl. Also, EIA distillate inventories rose +2.37 million bbl to a 2-1/3 year high, a larger build than expectations of +1.9 million bbl.
Thursday's EIA report showed that (1) U.S. crude oil inventories as of Jan 12 were -2.7% below the seasonal 5-year average, (2) gasoline inventories were +0.3 above the seasonal 5-year average, and (3) distillate inventories were -3.4% below the 5-year seasonal average. U.S. crude oil production in the week ended Jan 12 rose +0.8% w/w at 13.3 million bpd, matching the record high.
Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Jan 12 fell by -2 rigs to 499 rigs, just above the 2-year low of 494 rigs from Nov 10. The number of U.S. oil rigs in the past year has fallen from the 3-3/4 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.
