January 22, 2024
Energy prices closed with weekly gains for oil and gasoline, while natural gas plummeted. Increased tensions in the Middle East and storage buildup were the main drivers.
Crude Oil
Middle East tensions add upward pressure to oil prices
- Crude oil prices have fallen more than -8.6% on a yearly basis, despite the inventory lowering by ~18.6 million barrels in the same period.
- Last week the market was supported by escalating tensions in the Middle East and an optimistic outlook for global oil demand.
- The US responded to Houthi attacks on shipping by launching further strikes on their targets in Yemen.
- Furthermore, recent data from the US EIA showed a larger-than-expected decline of 2.5 million barrels in crude inventories last week.
- On the demand side, the IEA revised its 2024 oil demand growth projection to 1.24 million bpd, up by 180k bpd, citing improved economic growth and lower crude prices in Q4.
- OPEC also maintained its forecast of 2.3 million bpd demand growth in 2024, with a strong expectation of 1.9 million bpd growth in 2025.
Gasoline
Gasoline net exports rose yearly, but futures prices reversed
- Gasoline net exports strengthened by +37% in comparison to same period last year, while the futures prices plunged nearly -17%.
- Current price at $2.16/gallon is a two-week high, as supply risks stemming from geopolitical tensions in the Middle East offset reports pointing to strong domestic supply.
- Houthi forces stated they would continue to attack US-registered vessels in retaliation to US-led strikes, prolonging the period that key fuel tankers will avoid the Red Sea and the Suez Canal.
- Still, the latest report from the EIA showed that gasoline stocks in the US rose for the third week straight, including a 10.9-million-barrel build in the last week of 2023, which was the sharpest increase in 30 years. Data from the API also confirmed three straight weeks of build-ups, leading to a accumulated ~22 million increase.
- Additionally, product supplied fell by 57k barrels, pointing to a negligible decline in demand.
Natural Gas
LNG prices in free fall as storage remains stron
- Money managed fund positions narrowed for the fifth straight week, reaching a 3 year high.
- US natural gas futures declined to an over two-week low, reaching $2.5/MMBtu on Friday, with weekly losses exceeding 20%, the highest since December 2022.
- The EIA reported a smaller-than-expected storage draw and forecasts indicate reduced demand and increased output due to due to upcoming warmer weather.
- Additionally, US LNG export plant flows hit a one-year low, likely due to energy firms redirecting gas to the domestic market amid elevated power gas prices caused by extreme cold.
- Government data showed US utilities pulled 154 billion cubic feet of natural gas from storage last week, less than market expectations of a 164 bcf decrease.
- Furthermore, storage remains 11.2% above the seasonal norm.