DTN Oil

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange settled Wednesday's session lower, with Brent and West Texas Intermediate (WTI) pulling back from four-week highs as the market assesses the geopolitical risk of transporting oil through the Red Sea while commercial oil inventory in the United States sits well above a year ago and U.S. production is at a record high.

Brent crude and WTI futures rallied to $81.72 and $76.18 four-week highs, respectively, on Tuesday in response to attacks by Houthis on vessels in the Red Sea, including anti-ship ballistic missiles for the first time, reported Fox News, citing U.S. Central Command. More than 21 international vessels have come under attack in the region by the Iranian-funded Houthis since October, which includes the narrow Bab-el-Mandeb chokepoint connecting the Red Sea and Gulf of Eden.

On Wednesday, oil futures reversed lower following news some shipping companies would continue to schedule voyage through the Red Sea, including container shipping giant Maersk. This is a vote of confidence in a coalition created to escort commercial vessels through the dangerous waterway. Operation Prosperity Guardian, a 10-country maritime coalition, announced by the U.S. on Dec. 19, includes the U.S. Navy, and vessels and personnel from the United Kingdom, Bahrain, Canada, Denmark, Greece, Italy, Norway, the Netherlands and Seychelles. Reports suggest additional countries are providing support for the coalition. India said on Tuesday that it would not join Operation Prosperity Guardian at this time. India Navy Chief Admiral R. Hari Kumar did indicate India has four destroyers deployed to counter piracy and drone attacks on commercial vessels, according to The Week.

The geopolitical volatility is realized against a backdrop of growing U.S. inventory in the fourth quarter while oil production in the U.S. reached a 13.3 million barrels per day (bpd) record output rate in December, according to Energy Information Administration. U.S. commercial crude oil inventory on Dec. 15 was 25.448 million barrels (bbl) or 6.1% above year ago at 443.682 million bbl, distillate stocks sat at a 115.024 million bbl 10-week high, and gasoline inventory totaled 226.723 million bbl, an 11-week high.

The American Petroleum Institute will release estimates for the stock change for the week ended Dec. 22 at 4:30 p.m. ET, with a Wall Street Journal survey reporting expectations for a weekly crude draw and product builds.

Survey respondents were in consensus for a crude inventory drawdown with a median decline of 2.4 million bbl. Gasoline stocks are expected to have edged up 100,000 bbl during the week reviewed, with expectations ranging from a 1.4 million bbl draw to a 2.2 million bbl build. Distillate inventory is expected to have increased by 700,000 bbl during the week ended Dec. 22.

EIA will release its holiday-delayed estimates at 11 a.m. ET Thursday.

WTI failed to garnish support from a weakening U.S. dollar, which settled the session at a 100.654 five-month low in index trading against a basket of foreign currencies. The dollar has weakened sharply since mid-December when the Federal Reserve suggested a monetary tightening cycle had ended and expected to cut the federal funds rate in 2024.

NYMEX February WTI futures settled down $1.46 at $74.11 bbl.

ICE February Brent settled $1.42 lower at $79.65 bbl ahead of expiration Thursday afternoon, with the March contract settling at a $0.11 discount to the expiring contract.

NYMEX January RBOB futures eased $0.0033 at $2.1550 gallon ahead of expiration Friday afternoon after swinging between gains and losses, with the February contract settling the session at a $0.0069 premium in the seasonal contango market.

NYMEX January ULSD futures settled $0.0449 lower at $2.6239 gallon ahead of expiration Friday afternoon, holding a $0.0214 premium to February delivery.

Brian L. Milne can be reached at brian.milne@dtn.com.