Oil prices have strengthened following a nearly 2% increase yesterday, amid signs of continued declines in U.S. inventories and official forecasts indicating a limited global deficit this year. Brent crude was traded near $78 per barrel, while West Texas Intermediate surpassed $72, according to Bloomberg. The American Petroleum Institute reported that nationwide inventories fell by 5.2 million barrels last week, with levels also decreasing at the Cushing hub. The Energy Information Administration, in its monthly forecast, stated that global demand will exceed supply by 120,000 barrels per day in 2024, predicting that the average price of Brent crude will reach $85 by March.
Crude oil has fluctuated since the start of the year, rising and falling alternately over recent days as traders attempt to gauge expectations for upcoming quarters. Supporting factors for the oil market include supply cuts from OPEC+, tensions in the Middle East, and supply disruptions in Libya. However, the significant drop in official prices by Saudi Arabia indicates underlying weakness.
CNBC reported, citing unidentified U.S. officials, that American partners and coalition forces are responding to two separate Houthi attacks on commercial vessels in the Red Sea. There has been a series of attacks on ships in the vital waterway in recent weeks, leading some shipping lines to choose not to navigate through the region.
Regarding OPEC, crude oil inventories in the United States have declined over four of the last five weeks, with the Energy Information Administration set to update the inventory counts later today. Inventories decreased by 4.1% in December, marking the largest monthly decline since June 2021.
The widely monitored price differentials for oil contracts reflect a somewhat more stable market in the short term, with the gap between the nearest two Brent crude contracts at 36 cents per barrel in a backwardation scenario (which occurs when spot barrels trade at higher premiums than future contracts), compared to just 11 cents for the same situation a week ago.
