2024-02-13 00:30:00
Crude oil trading alert: Oil prices bottom out and rebound as tensions in the Middle East offset demand concerns
At the beginning of the Asian market on Tuesday (February 13), U.S. crude oil is currently trading around US$76.90 per barrel; concerns regarding interest rates and global demand once caused oil prices to fall more than 1% intraday on Monday, but then reversed the decline, and tensions in the Middle East The situation might lead to supply issues that continue to support oil prices.
Brent crude oil futures closed up 0.27% on Monday at $82.08 per barrel, with the settlement price at $82.00 per barrel. U.S. crude oil futures closed up 0.52% on Monday at $76.92 per barrel, with a settlement price of $76.92. U.S. crude oil futures hit a new closing high since January 30 for the third consecutive day, rising for six consecutive days for the first time since September.
The New York Federal Reserve said in its January survey of consumer expectations on Monday that one- and five-year inflation expectations were 3% and 2.5%, respectively, unchanged from the previous month.
US inflation data will be released on Tuesday, followed by UK inflation and euro zone gross domestic product (GDP) data on Wednesday.
The International Energy Agency (IEA) predicts that oil demand will peak in 2030, weakening the case for investment.
Patrick Pouyanne, chief executive of France’s Total Energy, said he did not believe peak oil demand might be predicted from the data, adding, “We should stop having the debate regarding peak oil demand, take it seriously and invest.”
Saudi Arabia’s energy minister said the country’s recent decision to halt oil production capacity expansion plans was due to the energy transition, adding that the country had ample spare capacity to provide a buffer for the oil market.
Iraq said it was committed to the decision by the Organization of the Petroleum Exporting Countries (OPEC), which announced a second round of voluntary production cuts in December. The country also said it is committed to producing no more than 4 million barrels per day.
Oil production from U.S. shale regions will increase to the highest level in four months in March, the U.S. Energy Information Administration (EIA) said in its monthly drilling productivity report on Monday.
[Market News Analysis]
Slowing crude oil demand weakens investment case
The New York Fed said its January survey of consumer expectations showed no change in the outlook for inflation one year from now and five years from now, both still above the Fed’s 2% target interest rate.
If inflation concerns delay a rate cut by the Federal Reserve, it might reduce demand for crude oil as economic growth slows. The International Energy Agency (IEA), which represents industrialized countries, predicts oil demand will peak in 2030, weakening the case for investment.
However, the Organization of the Petroleum Exporting Countries (OPEC) believes that oil use will continue to grow over the next two decades.
Crude oil supply remains the main conflict in the market
Saudi Energy Minister Abdul Aziz said Aramco’s decision to stop expanding production capacity was due to the energy transition. He said that Saudi Aramco will not necessarily give up expanding production and that Saudi Arabia is constantly reviewing its decisions to ensure the stability of the energy market.
The company surprised the oil industry last month by announcing that plans to increase production capacity by regarding 8% to 13 million barrels per day by 2027 would not go ahead. The move raises questions regarding Saudi Arabia’s view of future demand and is a concession to strong oil supplies from rivals including U.S. shale producers as the world shifts to low-carbon energy.
Additionally, halting expansion saves the company billions of dollars in annual expenses and might result in higher dividend payments to the government.
OPEC member Iraq said following announcing a second voluntary production cut in December that it was committed to OPEC’s decision. Iraq also expressed its commitment to produce no more than 4 million barrels per day.
Meanwhile, oil production in the most prolific U.S. shale region is expected to rise to a four-month high in March, according to the Federal Energy Outlook.
Portfolio investors gave up hopes of an early rise in crude oil prices following a site-wide power failure caused BP to unexpectedly shut down production.
The Whiting, Indiana, refinery is the largest in the U.S. Midwest, processing more than 400,000 barrels per day, so an extended shutdown to conduct safety inspections and restart processes might significantly reduce crude oil consumption.
Excess crude oil might build up in the Midwest, particularly around the Nymex delivery point in Cushing, Oklahoma.
Inventories at Cushing had been depleting before the outage, and investors were preparing to squeeze on deliverable supply.
The prospect of tightening has been pushing up prices for U.S. crude and Brent crude, but power outages have delayed further depletion and caused prices to slide.
In the seven days ended February 6, hedge funds and other money managers sold the equivalent of 86 million barrels of the six most important oil-related futures and options contracts.
There was heavy selling in NYMEX and ICEWTI (-62 million barrels) and Brent (-23 million barrels) as fund managers anticipated a significant increase in available crude oil volumes.
As the prospect of tightening recedes, funds are selling WTI at the fastest pace since October 2023, and before that in July 2021.
Total WTI positions fell to a three-week low of 55 million barrels (4th percentile of all weeks since 2013) from 117 million barrels the previous week (16th percentile).
Since mid-January, fund managers have been trying to get bullish on WTI once more on continued inventory drawdowns and the prospect of a return to U.S. manufacturing growth. But the Whiting power outage delayed that for at least a few weeks.
Meanwhile, crude oil trading was thin as many Asian markets were closed for the Lunar New Year holiday. Oil prices have been trading in a range around $10 for most of this year as jitters over conflict in the Middle East have been partially offset by ample global supply and a shaky demand outlook.
Analysts at Goldman Sachs Group Inc. said in a note that there are additional downside risks to demand forecasts in the Asian powerhouse, citing surging electric vehicle sales and conversations with local consumers.
Traders will be watching monthly reports from OPEC and the International Energy Agency this week for further insights into supply and demand.
Oil and Natural Gas Corporation of India (ONGC) executive: Oil and gas production in fiscal 2024 is expected to be the same as last year.
Geopolitical risks sent prices soaring last week
Yemen’s Iran-backed Houthi rebels have been targeting shipping with drones and missiles since November in solidarity with the Palestinians in Gaza. Since January, the United States has been carrying out retaliatory strikes once morest Houthi armed missile bases.
Oil prices fell following Iran’s foreign minister said last week that the conflict between Israel and Hamas may be closer to a diplomatic solution.
“Iran’s diplomatic moves this morning were a bit bearish,” SEB analysts Bjarne Schieldrop and Ole Hvalbye wrote in a note.
Still, Yemen’s Houthis said they had attacked another vessel in the Red Sea, underscoring continued threats to shipping in the region.
Meanwhile, the Israeli military carried out a series of attacks on targets in the southern Gaza city of Rafah. Prime Minister Benjamin Netanyahu said on Sunday that civilians would be guided away from danger before military action.
Benchmark crude oil prices rose regarding 6% last week amid ongoing threats to shipping in the Red Sea, a strike in Ukraine once morest Russian refineries and maintenance at U.S. refineries.
Analysts at energy consultancy Ritterbusch and Associates said: “We will note once more that global crude oil supplies have not been significantly disrupted by hostilities in the Middle East and that the rerouting of oil cargoes around the Red Sea has not significantly reduced global crude oil supplies.”
In Gaza, Israel released two hostages held by Iran-backed Hamas in Rafah in a violent rescue operation that left 74 Palestinians dead in the southern Gaza city that is home to regarding 1 million civilians. Seeking shelter from the bombings in May.
Crude oil price expectations
Morgan Stanley raised its Brent oil price forecast for 2024 and 2025 by $2.50-$5/barrel, saying recent inventory declines suggested the market was tighter than initially expected. It currently expects Brent crude oil prices to be approximately US$82.50/barrel in the first quarter, compared with US$80/barrel previously; in the fourth quarter, the price is expected to be approximately US$80/barrel, compared with US$75/barrel previously; by the end of 2025 In half a year, the price is expected to rise to $77.50 from the previous forecast of $72.50.
Analysts including Martijn Rats believe that OPEC’s better-than-expected implementation of its production reduction policy and reduced U.S. crude oil production due to cold weather have contributed to the inventory reduction. The bank also raised its oil demand growth forecast to 1.5 million bpd from 1.3 million bpd and lowered its forecast for non-OPEC demand growth to 1.5 million bpd from 1.7 million bpd.
At 08:30 Beijing time, U.S. crude oil was currently trading at $76.90 per barrel.
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