Oil Market Sees Upsurge Amidst Multiple Factors: Oil prices experienced a boost fueled by ongoing declines in US crude stockpiles and heightened security concerns in the Red Sea, where Houthi rebels launched attacks on merchant vessels. Brent crude edged closer to $78 a barrel, while West Texas Intermediate (WTI) approached $73. The American Petroleum Institute reported a 5.2 million-barrel decrease in nationwide inventories last week, including a decline at Cushing. The Energy Information Administration also projected a narrow global supply deficit.
Red Sea Security Risks and Ongoing Attacks: In the southern Red Sea, Iran-backed Houthi rebels continued their attacks on merchant vessels, further escalating tensions in the region. Despite the deployment of a US-led maritime force, incidents persist, with observers linking them to the Israel-Hamas conflict. While these attacks did not result in injuries or damage, they contribute to concerns about potential disruptions in Middle East oil supply.
Market Volatility and Crude Price Movements: The oil market has exhibited volatility since the beginning of the year, with prices fluctuating on alternate days. Traders grapple with assessing the outlook for the coming quarters amid a complex mix of factors. OPEC+ supply cuts, Middle East tensions, including those in the Red Sea, and production outages in Libya have provided support. However, Saudi Arabia’s significant reduction in official prices suggests underlying weaknesses in the market.
Factors Driving Indecision in Oil Prices: Yeap Jun Rong, a market strategist for IG Asia Pte, highlighted the confluence of factors contributing to the indecision in oil prices. Developments in the Middle East, conflicting supply outlooks, and slow global growth collectively contribute to the current uncertainty.
Crude Timespreads Indicate Near-Term Firmness: Crude timespreads, closely monitored indicators, reveal a slightly firmer near-term market. The gap between the two nearest Brent contracts stands at 36 cents a barrel, reflecting a bullish, backwardated structure where prompt barrels trade at premiums to later ones. This marks an increase from 11 cents in backwardation observed a week ago.
Market Response to EIA Outlook: Brent closed nearly 2% higher following the Energy Information Administration’s (EIA) monthly outlook, which projected global oil demand exceeding supply by 120,000 barrels a day in 2024. The EIA’s report also highlighted a 4.1% shrinkage in overall US crude stockpiles in December, the most significant monthly drop since June 2021. Fresh data from the EIA is anticipated later on Wednesday.
