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Tag: CLG24

  • Why Red Sea chaos is driving oil buyers ‘into the arms of U.S. shale producers’

    Why Red Sea chaos is driving oil buyers ‘into the arms of U.S. shale producers’

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    Attacks by Iran-backed Houthi rebels on vessels in the Red Sea have led to transport disruptions for oil and other goods, but international oil shippers may have found a way to deal with the chaos.

    The latest data from the Energy Information Administration offers a hint to that solution.

    The report from the government agency showed surprisingly large weekly increases in gasoline and distillate supplies, contributing to losses for energy futures on Thursday.

    But Robert Yawger, executive director for energy futures at Mizuho Securities USA, also highlighted another key figure in the data — a weekly jump in U.S. petroleum exports.

    Exports climbed by 1.377 million barrels a day to 5.292 million barrels a day for the week ended Dec. 29, according to the EIA.

    “For the first time since Houthi Yemeni rebels started to attack international shipping in the Red Sea, we are seeing a spike in U.S. exports,” said Yawger, in a Thursday afternoon note.

    The Red Sea chokepoints are critical for international oil and natural-gas flows, according to the EIA.


    U.S. Energy Information Administration

    “Apparently, international shippers are worried about being attacked on the open sea, and are getting beat” on the cost of sailing around the Cape of Good Hope in South Africa as an alternative to the passage through the Red Sea, he said. Instead, the “safer and cheaper way to procure supply, especially for EU customers, is to sail the boat to the U.S. Gulf Coast and load up on cheap U.S. [oil] barrels.”

    See: Houthis launch sea drone to attack ships in Red Sea, hours after U.S. issues ‘final warning’

    U.S. benchmark West Texas Intermediate crude
    CL.1,
    +0.66%

    CLG24,
    +0.66%
    trades at a discount to global benchmark Brent crude
    BRN00,
    +0.45%

    BRNH24,
    +0.45%    .
    On Thursday, the February WTI futures contract settled at $72.19 a barrel on the New York Mercantile Exchange, while March Brent settled at $77.59 on ICE Futures Europe — a difference of $5.40 a barrel.

    That compares with a “cost of carry” for an Amsterdam/Rotterdam/Antwerp refiner of around $4 a barrel, said Yawger. So “forget about the Houthis/Iranian menace in the Red Sea,” he said. “You don’t need a U.S. Navy escort from danger — just a nice, clean two- to- four-week round-trip journey to the U.S.”

    “‘Ironically, the chaos in the Middle East is driving international crude-oil customers into the arms of the U.S. shale producers.’”


    — Robert Yawger, Mizuho

    He expects U.S. petroleum exports to sustain the 5 million plus barrel-per-day level in the coming weeks, with the “geopolitical situation seemingly heating up every day.”

    “Ironically, the chaos in the Middle East is driving international crude-oil customers into the arms of the U.S. shale producers,” said Yawger. “There is a very good chance U.S. exports break the all-time record in coming weeks, just in time for refiners to pull back on the run rate.”

    Weekly U.S. crude-oil exports reached a record 5.629 million barrels a day in the week ended Feb. 24, 2023, based on EIA data going back to February 1991.

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  • Oil prices end lower as crude suffers first losing year since 2020

    Oil prices end lower as crude suffers first losing year since 2020

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    Oil futures ended slightly lower Friday on the final trading day of 2023, capping crude’s first losing year since 2020 as concerns about the demand outlook outweighed potential supply disruptions and efforts by OPEC and its allies to limit production.

    Price action

    • West Texas Intermediate crude for February delivery
      CL00,
      -0.45%

      CL.1,
      -0.45%

      CLG24,
      -0.45%
      fell 12 cents, or 0.1%, to close at $71.65 a barrel on the New York Mercantile Exchange.

    • March Brent crude
      BRN00,
      +0.05%

      BRNH24,
      +0.05%      ,
      the global benchmark, fell 11 cents, or 0.1%, to settle at $77.04 a barrel on ICE Futures Europe.

    • Back on Nymex, January gasoline
      RBF24
      rose 0.8% to $2.103 a gallon, while January heating oil
      HOF24
      fell 0.1% to $2.553 a gallon.

    • February natural gas
      NGG24,
      -0.64%
      declined 1.7% to finish at $2.514 per million British thermal units.

    Market drivers

    WTI, the U.S. benchmark, slumped 21.1% in the fourth quarter and suffered a yearly fall of 10.7%. Brent tumbled over 19% in the final three months of the year, posting an annual loss of 10.3%.

    Gasoline futures dropped 14.5% in 2023, while heating oil declined 24.1%. Natural gas plunged nearly 44%.

    Crude had rallied over the summer as the Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, maintained production cuts, with Saudi Arabia throwing in a voluntary reduction of 1 million barrels a day beginning in July and Russia moving to curb exports. While production cuts have been rolled over into early 2024, oil peaked in late September as expectations for a significant supply deficit failed to materialize.

    Increased production by the U.S., which saw its output hit record levels in 2023, and other non-OPEC producers have also capped the upside for crude, analysts said.

    Read: Why oil may not see a return to $100 a barrel in 2024

    Oil futures jumped in the wake of the outbreak of the Israel-Hamas war in October on fears that a broader conflict could cramp supplies from the Middle East, but crude failed to challenge its September highs and soon eroded its geopolitical-risk premium. Prices bounced somewhat in December as attacks by Yemen’s Iran-backed Houthi rebels on shipping vessels in the Red Sea sparked a round of rerouting, but gains have proven difficult to sustain.

    Instead, investors “have started to focus on the risk that there may be excessive supply in oil markets next year, and insufficient demand,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.

    “Even though OPEC+ has taken repeated steps to rein in production and support prices, it is unlikely to pursue the same strategy for much longer, as it would forfeit more market share to U.S. producers who have dialed up their own production to record levels,” he wrote.

    Natural-gas prices, meanwhile, have slumped recently on a warmer-than-normal winter, said Lu Ming Pang, senior analyst at Rystad Energy, in a Friday note.

    The number of heating-degree days (HDDs), which reflect the extent of heating required, has been below normal so far, with a deviation of 28 fewer HDDs from the normal reported on Dec. 15, the analyst noted. HDDs are forecast to rise through Jan. 5 but remain slightly below normal.

    “Gas demand for heating is likely to rise as a result but will still remain below seasonal norms,” Pang said. “A combination of warmer weather, high underground-storage levels, and high domestic gas production is expected to keep U.S. prices suppressed.”

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