February WTI crude oil (CLG24) on Friday closed up +1.62 (+2.24%), and Feb RBOB gasoline (RBG24) closed down -0.46 (-0.22%).
Crude oil and gasoline prices on Friday settled mixed, with crude posting a 1-week high. A reversal in the dollar Friday boosted energy prices after the dollar index (DXY00) fell back from a 3-week high and turned lower. Also, Friday's mostly better-than-expected U.S. economic news is positive for energy demand and crude prices. In addition, crude has carryover support due to supply disruptions in Libya and heightened geopolitical tensions in the Middle East.
Crude has support on tighter global crude supplies after Libya said Wednesday 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.
Friday's U.S. economic news was mostly better than expected and supports energy demand and crude prices. Dec nonfarm payrolls rose +216,000, stronger than expectations of +175,000. Also, Nov factory orders rose +2.6% m/m, stronger than expectations of +2.4% m/m and the biggest increase in 2-3/4 years. On the negative side, the Dec ISM services index fell -2.1 to a 7-month low of 50.6, weaker than expectations of 52.5.
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.
Weakness in the crude crack spread is bearish for crude prices. On Friday, the crack spread fell to a 3-week low, discouraging refiners from purchasing crude oil to refine into gasoline and distillates.
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.
Thursday's EIA report showed that (1) U.S. crude oil inventories as of Dec 29 were -2.3% below the seasonal 5-year average, (2) gasoline inventories were +1.8 above the seasonal 5-year average, and (3) distillate inventories were -4.1% below the 5-year seasonal average. U.S. crude oil production in the week ended Dec 29 fell -0.8% w/w to 13.2 million bpd, falling back from the previous week's record 13.3 million bpd.
Baker Hughes reported 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.
