DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange edged lower during Friday's afternoon session, although all petroleum contracts registered their second consecutive weekly advance amid improved sentiment in financial markets and shipping disruption in the Red Sea following a series of attacks by Houthis militia on commercial vessels off the southern coast of Yemen.

In broader markets, the U.S. dollar index lost ground against a basket of foreign currencies to finish the week at 101.338, down 1.2% from the prior Friday, after fresh consumer data in the United States showed sentiment improved markedly in December, led by a more positive outlook on the labor market and business conditions. Notably, consumer expectations for inflation plunged to the lowest point since March 2021, sitting just above the 2.3%-3% range seen in the two years prior to the pandemic. Long-run inflation expectations fell from 3.2% last month to 2.9% this month, staying within the narrow 2.9%-3.1% range for 26 of the last 29 months.

More evidence of easing inflation pressures could be found in Friday's release of the Personal Consumption Index, the Federal Reserve's preferred inflation measure, which fell 0.1% from the previous month on a core basis. What's more, core PCE increased just 1.9% over the past six months, indicating that if current trends continue, the Fed essentially has reached its goal. The Fed's inflation target is 2%.

Separately, oil traders continue to monitor the developing situation in the Strait of Bab al-Mandab as more shipping operators vowed to avoid the Red Sea amid heightened security concerns. The United States announced a maritime security coalition consisting of 10 countries to protect safe passage for commercial vessels through the narrow waterway passage. Market sources said despite the coalition, the disruption to shipping won't be resolved quickly.

The Red Sea has increased importance in global oil flow, with 8.8 million barrels per day (bpd) of crude oil transiting through the waterway in the first half of 2023, up from 4.9 million bpd two years ago, according to the U.S. Energy Information Administration. Suez Canal and Strait of Bab al-Mandab have become particularly important for Russian crude oil exports that rose from just 120,000 bpd in the two weeks leading up to the war in Ukraine to 1.7 million bpd during the most recent six months.

Similarly, 4.4 million bpd of petroleum products, including gasoline, diesel, and jet fuel, have been shipped during the first half of 2023 via the same chokepoint from the Asian and Middle Eastern refiners towards Europe and North America.

Limiting upside for the oil complex are concerns of fracturing within the OPEC+ alliance after Angola abandoned the quota system to pursue private investments for expansion of its oil industry.

"We feel that at the moment Angola does not gain anything by remaining in the organization and, in defense of its interests, it has decided to leave," said Joao Loureno, president of Angola, according to the Angola Press Agency.

The decision to leave the Organization of the Petroleum Exporting Countries following 16 years follows a dispute over production quotas in late November. OPEC+, chaired by Saudi Arabia and Russia, lowered Angola's production quota for 2024 to 1.28 million bpd from 1.455 million bpd, citing consistent underperformance on its output targets.

At settlement, NYMEX West Texas Intermediate futures for February delivery slipped $0.33 to $73.56 per barrel (bbl), while Brent declined $0.32 to $79.07 per bbl. NYMEX RBOB January futures moved down $0.0284 to $2.1301 per gallon, and the NYMEX ULSD January contract fell $0.0356 to $2.6612 per gallon.

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