Oil Prices React to Inventory Data and Geopolitical Tensions

Oil prices are showing a dynamic response to changing inventory figures and escalating geopolitical tensions. This morning, crude oil has surged by over $1.70 per barrel, partially rebounding from yesterday’s losses. In the overnight trading session, the prompt oil contract dipped to the 200-week moving average, underlining the market’s sensitivity to global events.

Recent data from a Reuters poll suggests a decline in U.S. crude stockpiles, with analysts estimating a drop of approximately 1.2 million barrels for the week ending January 5th. This followed a substantial 5.5 million-barrel decrease in the previous week, fueled by robust refinery operations and heightened year-end exports. Market watchers eagerly await the forthcoming reports from the American Petroleum Institute (API) and the Energy Information Administration (EIA). These reports are poised to provide crucial insights into the state of crude oil inventories, a factor with the potential to sway oil prices.

Analysts from BofA Global Research have also offered insights into their expectations for oil prices. They anticipate ongoing volatility in energy markets, largely driven by geopolitical factors and OPEC policy. The projected trading range for Brent crude is expected to span between $70 and $90 per barrel. However, it is crucial to consider a potential risk – the emergence of a permanently backward oil curve due to spare capacity, which could pose challenges to the overall value of the sector.

Meanwhile, in Canada, the Trans Mountain Pipeline expansion project is reported to be over 95% complete. Once finished, this expansion will boost the pipeline’s capacity by 590 thousand barrels per day, facilitating more crude deliveries from Alberta’s oil sands to Canada’s Pacific Coast for export to new markets in Asia and the U.S. West Coast.

Geopolitical Tensions

Ongoing supply disruptions in Libya, where 300,000 barrels per day of production remain offline, added upward pressure to oil prices. Additionally, heightened tensions in the Middle East raised concerns about potential disruptions to oil supplies. Major shipping companies continue to avoid the Red Sea due to attacks by Yemeni Houthi militants, who have targeted vessels in support of Hamas in its conflict with Israel. Notably, Germany announced its decision to divert vessels around the Cape of Good Hope to bypass the Red Sea. Furthermore, the situation in Libya has exacerbated price volatility. Approximately 300,000 barrels per day of oil supply remain offline in Libya due to various disruptions.

Russia, another significant player in the oil market, has adhered to its pledged OPEC+ cut commitments, with seaborne crude exports totaling 3.34 million barrels per day in the four weeks leading up to January 7th. These events underscore the fragility of global oil supply and its direct impact on price fluctuations.

A noteworthy development that has also echoed through energy markets is Saudi Arabia’s decision to reduce its official selling prices (OSPs) to a 27-month low. This move raised concerns about both supply and demand within the oil market, leading analysts to speculate on the potential implications, including a possible increase in oil supply and discord within the OPEC+ alliance.