Week in Review – February 9, 2024

Oil prices experienced a volatile week, influenced by ongoing geopolitical factors and supply concerns. This morning, crude traded slightly lower, retaining most of the gains from the previous day, and is poised to conclude the week with an increase of approximately $4 per barrel.

Earlier in the week, the second-largest oil-processing facility in Russia’s Black Sea region was targeted in a drone strike, leading to a fire that lasted for two hours. These attacks are part of a series targeting Russian refineries and fuel-storage facilities, contributing to supply concerns. Throughout the week, escalating geopolitical tensions intensified the situation. Israeli forces continued airstrikes on Gaza, rejecting a ceasefire proposal, which fueled concerns about prolonged conflict in the Middle East.

Additionally, Ukraine launched drone attacks on oil refineries in southern Russia, resulting in further supply disruptions and refinery fires. In parallel, the United States imposed sanctions on firms and a tanker for violating price caps on Russian oil, adding another layer of complexity to the market dynamics. These events collectively pushed oil prices higher, with Brent crude reaching $81.47 per barrel, while U.S. West Texas Intermediate (WTI) hovered at $76.16 per barrel.

Amidst geopolitical chaos, market dynamics played a crucial role in shaping oil prices. In the US, the Department of Energy’s plan to purchase 3 million barrels of crude for the Strategic Petroleum Reserve signaled potential tightening in near-term US balance expectations. Additionally, OPEC+ reported a significant decline in crude output by 340,000 barrels per day in January, marking the largest monthly drop in six months. However, this reduction fell short of the pledged output cuts of 700 thousand barrels per day.

In January, OPEC produced 26.49 million barrels per day collectively, down from 26.80 million barrels per day in December, with core group output slipping by 310,000 barrels per day. Meanwhile, Russia-led allies saw their oil output fall by 30,000 barrels per day to 14.72 million barrels per day.

Economic indicators from major economies also influenced market sentiment. In the United States, wholesale inventories increased by 0.4% in December, in line with expectations, indicating stability in the supply chain. Jobless claims declined by 9,000 to 218,000 in the week ended February 3, roughly in line with expectations, reflecting a stable labor market.

Meanwhile, in China, the People’s Bank of China (PBOC) reiterated its supportive stance in its Q4 monetary policy report, maintaining an easing bias to support economic growth. The PBOC highlighted the need to balance bond issuance and loan extension and pledged to provide sufficient liquidity to facilitate government bond issuance. These policy measures are aimed at stimulating credit growth and supporting economic recovery in China.

Looking ahead, oil prices are likely to continue experiencing volatility, driven by geopolitical developments, especially in the Middle East and Eastern Europe. Important to note that unexpected changes in production levels or disruptions in major oil-producing regions could lead to sharp price fluctuations.

Prices in Review

Crude opened the week at $71.62, then increased to $73.37 on Tuesday. On Wednesday, it dipped slightly to $73.52 but then jumped to $75.28 on Thursday. On Friday, it increased again to $76.12, representing gains of $4.50 or 6.29%.

Throughout the week, the price of diesel exhibited a pattern of consistent growth. Beginning at $2.6712 on Monday, it increased steadily each day, reaching $2.7306 on Tuesday, $2.7759 on Wednesday, $2.8526 on Thursday, and finally peaking at $2.9071 on Friday. This represents a gain of $0.2359, or approximately 8.83%.

Gasoline opened Monday at $2.1507, then increased to $2.2172 on Tuesday. Wednesday saw a slight drop to $2.2260, followed by a notable increase on Thursday to $2.3282. On Friday, it experienced an uptick to $2.3436, resulting in a gain of $0.1929 or 8.97% throughout the week.