Oil Mixed on US Slower Output Growth

Oil prices were mixed as the US lowered output expectations and a less-than-projected rise in crude stockpiles amidst hopes of a ceasefire in the Israel-Gaza war.

Brent prices slide by 0.06% to $78.54 per barrel. The American benchmark, West Texas Intermediate (WTI), traded at the same time at $73.39 per barrel, up 0.10% from Tuesday’s close of $73.31 per barrel.

According to the US Energy Information Administration’s (EIA) Short-Term Outlook released on Tuesday, the US has revised its growth expectations for 2024, predicting that oil production will level off for the majority of the year.

This adjustment comes after production declined from a record high of 13.3 million barrels per day (bpd) in December to 12.6 million bpd in January. Production rates are not expected to hit further high levels until 2025, except for a rebound in February.

Alleviating concerns about a potential supply glut in the first quarter of the year, the EIA’s revised output predictions contributed to positive market momentum and exerted downward pressure on oil prices.

Additionally, the American Petroleum Institute (API) late Tuesday announced an increase of 674,000 barrels in US crude oil inventories, against the market expectation of a build of 2.133 million barrels.

However, although the data indicated a fall in the world’s biggest oil-consuming country’s oil demand, the lower-than-expected rise in stocks supported oil price increases.

Easing geopolitical tensions and supply disruptions

One of the world’s most popular marine routes for the shipment of oil and fuel is increasingly vulnerable to supply chain disruptions due to the persistent tension in the Red Sea caused by the Israel-Palestine conflict, which is driving up costs.

However, the increased likelihood of a settlement in the Israel-Palestine conflict alleviated concerns about supply interruptions and restrained additional price rises.

The US Secretary of State, Antony Blinken, said on Tuesday he would discuss Hamas’ response to a cease-fire proposal with Israel in Tel Aviv on Wednesday.

Blinken had previously visited Saudi Arabia, Egypt and Qatar to hold discussions about the truce between Israel and Palestine.

‘Hamas responded to the cease-fire framework agreement. We are reviewing that response. I will be discussing it with the government of Israel tomorrow,” Blinken said at a news conference with his Qatari counterpart, Mohammed bin Abdulrahman bin Jassim Al Thani, in Doha.

Blinken noted that an agreement to renew and broaden a cease-fire and secure the release of hostages would be the best path forward for advancing a prolonged cease-fire in Gaza.

Despite the easing of certain geopolitical risks, market sentiment remains cautious due to the US’s commitment to intensifying military action against Iran’s forces and its proxies in the Middle East.

Slower US oil output growth

Oil prices edged higher yesterday, though they continue to trade in a fairly range bound manner. ICE Brent settled 0.77% higher on the day, but the market continues to trade firmly below the US$80.

Given the heightened geopolitical risk, the range-bound trading and lack of a risk premium may surprise some, ING commodity strategists said in a note.

Analysts noted that market participants appear to be assuming that there will not be a significant escalation in the Middle East, at least an escalation which puts oil supply at risk.

“It’s important to remember that while we are seeing disruptions to trade flows as a result of Red Sea developments, oil production remains unchanged as a result”, ING said in its note.

Furthermore, the oil balance is comfortable through 1H-2024, while OPEC is sitting on a little more than 5m b/d of spare capacity, of which more than 3m b/d sits in Saudi Arabia.

Numbers overnight from the API show that US crude oil inventories increased by 674k barrels over the last week, which is somewhat lower than the roughly 2m barrel build the market was expecting. #Oil Mixed on US Slower Output Growth#

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