Oil Prices Moderate over Weak Demand Outlook
Global market prices of crude oil moderated on Tuesday with an increase in the US dollar index and with expectations of low demand amid high US stockpiles. Brent declined by 0.29% to $77.92 per barrel from $78.15 a barrel on Monday.
The American benchmark, West Texas Intermediate (WTI), traded at the same time at $72.32 per barrel, down 0.65% from Monday’s close of $72.79 per barrel. The rise in the US dollar against other currencies aided the fall in oil costs.
The US dollar index, which measures the US dollar’s value against other currencies, increased 0.53% to 102.695. The strong dollar is expected to lower demand by making oil more expensive for users of foreign currencies.
Expectations of a drop in oil production in the US, the world’s largest oil-consuming country, due to cold weather gained strength. Harsh weather conditions could stall refinery operations and consequently raise prices amid dwindling supplies.
Experts are awaiting the release of crude oil stock data from the American Petroleum Institute (API) and official data from the Energy Information Administration this week.
API data last week showed that US stocks decreased by 5.2 million barrels, signalling a rise in crude demand. However, a combination of low demand and a build-in inventory this week could curb this upward price trend.
Increasing tension in the Middle East, where the majority of global oil resources are located, and disruptions to shipments in the Red Sea, one of the world’s most frequently used sea routes for oil and fuel shipments, are putting supplies at risk and bolstering prices.
Last week, US and British warplanes attacked the Yemeni cities of Sanaa, Hudaydah and Taiz in retaliation for Houthis’ attacks on international shipping lanes in the Red Sea.
In response to US and UK airstrikes, Yemeni Houthis announced Monday that they had targeted a US-owned ship with naval rockets off the Yemeni coast. In a statement, the group’s spokesman, Yahya Saree, said the attack took place in the Gulf of Aden, claiming the strike was ‘accurate and direct.’
Oil flows via the Red Sea are significant given the level of oil production in the region, ING commodities strategists said in a note.
Around 12% of total global seaborne oil trade goes through the Red Sea, alongside large flows of both crude oil and refined products. And this applies to northbound flows towards the Med and Europe, as well as southbound flows which ultimately go towards Asia.
According to the EIA, in the first half of 2023, 9.2m b/d of oil (both crude and refined products) went through the Suez Canal and SUMED pipeline.
Meanwhile, 8.8m b/d went through the Bab el-Mandeb Strait, the chokepoint between Yemen and Djibouti. Volumes through the Suez and SUMED are larger, given that there will be some Saudi flows exported from the Red Sea (via the East-West crude oil pipeline) to Europe.
Since Russia’s invasion of Ukraine, there has been an increase in oil flows southbound towards Asia. This is a result of the EU’s ban on imports of Russian oil, which has seen Russian shipping to alternative destinations, particularly India and China.
Some Middle Eastern countries have also taken larger volumes of Russian refined products, particularly Saudi Arabia. Europe will also be pulling in more middle distillates from Asia and the Middle East via this route since the Russia-Ukraine war.
According to Refinitiv shipping data, in 2021, middle distillate (gasoil/jet fuel) flows from the Middle East and Asia to Europe averaged a little over 490k b/d, whilst in 2023, these flows averaged almost 860k b/d. A large share of this would go via the Red Sea.
There have been announcements from a growing number of shippers that they will avoid shipping through the region and instead go around the Cape of Good Hope. While tanker traffic through the Red Sea in December held up well, it started coming under pressure in January, particularly after the US and UK airstrikes in Yemen.
This means longer voyage times, which could lead to some tightness in oil and products as the market adjusts. It would also reduce tanker availability and push-up rates, ING analysts said. #Oil Prices Moderate over Weak Demand Outlook Nigeria Eurobond Slumps after CBN Resumes OMO Auction
