February WTI crude oil (CLG24) on Monday closed up +1.78 (+2.42%), and Feb RBOB gasoline (RBG24) closed up +7.50 (+3.47%).
Crude oil and gasoline prices on Monday moved higher, with crude posting a 3-1/2 week high and gasoline posting an 8-week high. Crude prices rallied Monday after a drone attack shut down a Novatek PJSC gas-condensate terminal on the Baltic Coast near a major oil export terminal, threatening to disrupt Russian crude exports. Also, Monday's rally in the S&P 500 to a record high shows confidence in the U.S. economic outlook that is bullish for energy demand and crude prices.
An attack by Ukrainian drones on Russian crude export terminals could disrupt Russian crude exports and is bullish for oil prices. On Sunday, Ukraine launched a drone attack that caused a fire and shut down Russia's Novatek PJSC's gas-condensate terminal in the port of Ust-Luga, close to some of Russia's most important oil export facilities.
A bearish factor for crude oil was the announcement from Libya's National Oil Corp that crude flows from the Sharara oil field, which has been closed for the past three weeks, would resume. The Sharara oil field is Libya's largest and pumps about 300,000 bpd.
The recent series of hostile incidents in the Red Sea against commercial shipping is bullish for oil prices. Earlier this month, 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.
An increase in crude in floating storage is bearish 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 rose +3.2% w/w to 75.28 million bbl as of Jan 19.
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. Meanwhile, on Dec 21, Angola announced that it was leaving OPEC amid a dispute over oil production quotas.
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.
Last 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 19 fell by -2 rigs to 497 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.
