DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange (NYMEX) oil futures and Brent crude on the Intercontinental Exchange settled Wednesday's session mixed, with all petroleum contracts moving off intrasession highs after U.S. Energy Information Administration (EIA)reported total oil and petroleum product supplies jumped 9.5 million barrels (bbl) last week as domestic oil production rose to a new record high 13.3 million barrels per day (bpd).

Wednesday's weekly EIA report was bearish across the board, showing an outsized build occurred in U.S. commercial crude oil inventories last week accompanied by a larger-than-expected increase in refined fuels supplies. Further details of the report revealed domestic oil stockpiles, excluding Strategic Petroleum Reserves, increased 2.9 million bbl during the week ending Dec. 15, missing expectations for a 2.5 million bbl drawdown. At 443.7 million bbl, commercial stockpiles currently stand some 1% above the five-year average. Oil stored at the Cushing tank farm in Oklahoma, the delivery point for West Texas Intermediate (WTI) futures, accounted for 1.7 million bbl of the build, lifting inventory to 32.5 million bbl. The build was supported by higher U.S. oil production, which jumped to a new record-high 13.3 million bpd last week, a 200,000-bpd increase from the previous week's average.

In its Drilling Productivity Report released earlier this week, EIA estimated oil production at the prolific Permian Basin in West Texas and East New Mexico would climb to a new record-high 5.986 million bpd at the start of 2024, up 218,621 bpd or 38% from January 2022. Bakken oil production in North Dakota is expected to see a 2,000-bpd gain in January to 1.308 million bpd, a fresh record high. Projected output in January would represent a 214,526 bpd or 19.6% year-on-year increase in oil production at the North Dakota basin.

Bearish elements in the weekly EIA report could also be found in refined products with gasoline stockpiles rising 2.7 million bbl in the reviewed week compared with expectations for a 700,000 bbl increase. Gasoline inventories are currently about 2% below their five-year average. Distillate stocks increased 1.5 million bbl compared with expectations for a 700,000 bbl build. U.S. refining capacity utilization rate rose 2.2% to 92.4%, which compares with 90.9% run rate a year earlier.

Earlier in the session, oil futures got a lift from reports suggesting the United States is considering targeted attacks on Houthis' military infrastructure in southern Yemen, raising the geopolitical risk premium in oil prices. The shift from a maritime coalition escorting commercial vessels through the Red Sea area to an offensive strategy could risk a larger regional conflict and is opposed by the region's key players, Saudi Arabia, and the United Arab Emirates.

International shipping companies in recent days have been largely avoiding the Red Sea amid attacks by the Houthis, instead rerouting vessels around the Horn of Africa, adding to shipping costs and time delays.

For the oil market, attacks in the Red Sea by the Houthis militia threaten about 12% of the seaborne trade of oil heading to Europe and Asia. According to market sources, the most affected oil flow are Russian exports headed towards Asia and Asian distillate products moving to Europe and the Atlantic Basin. Around 4.4 million bpd of petroleum products, including gasoline, diesel and jet fuel, were shipped during the first half of 2023 through the Red Sea from Asian and Middle Eastern refiners towards Europe and North America.

According to estimates by Goldman Sachs, the disruption to shipping in the Red Sea could add around $4 bbl to product crack spreads in New York Harbor and Northwest Europe.

At settlement, NYMEX WTI futures for February delivery added $0.28 to $74.22 bbl, while Brent gained $0.47 to $79.70 bbl. NYMEX RBOB January futures settled little changed at $2.2007 gallon, and NYMEX ULSD January contract fell $0.0083 to $2.7085 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com.