NMEX Crude      $ 72.19 UP $.5100

NYMEX ULSD     $2.5884 DN $.0160

NYMEX Gas       $2.1101 DN $.0480

NEWS

February WTI crude oil on Thursday closed down -0.51 (-0.70%), and Feb RBOB gasoline closed down -4.80 (-2.22%). Crude oil and gasoline prices Thursday gave up an early advance and turned lower weekly inventories of crude products unexpectedly rose in Thursday’s weekly EIA report, a sign of weak U.S. energy demand.  Crude prices Thursday initially moved higher due to supply disruptions in Libya and heightened geopolitical tensions in the Middle East.  Also, better-than-expected global economic reports Thursday were positive for energy demand and crude prices. 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.

Thursday’s economic news was better than expected and supported energy demand and crude prices.  U.S. weekly initial unemployment claims fell -18,000 to a 2-1/2 month low of 202,000, showing a stronger labor market than expectations of 216,000.  Also, the U.S. Dec ADP employment change rose +164,000, showing a stronger labor market than expectations of +125,000 and the biggest increase in 4 months.  In addition, the China Dec Caixin services PMI rose +1.4 to a 5-month high of 52.9, stronger than expectations of 51.6.  Finally, the Eurozone S&P Dec composite PMI was revised upward by +0.6 to 47.6 from the previously reported 47.0.

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.

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 weekly EIA report was mixed for crude oil and its products.  On the bearish side, EIA gasoline supplies unexpectedly rose +10.9 million bbl to a 9-1/2 month high versus expectations of a -1.67 million bbl draw on weak demand as U.S. gasoline demand the week of Dec 29 fell -13.2% w/w to 7.954 million bpd, the least in nearly a year.  Also, EIA distillate stockpiles unexpectedly rose +10.09 million bbl to a nearly 2-year high versus expectations of a -1.1 million bbl draw.  In addition, crude supplies at Cushing, the delivery point of WTI futures, rose to +706,000 bbl.  On the bullish side, EIA crude inventories fell -5.5 million bbl, a bigger draw than expectations of -3.0 million bbl.  

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 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.

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