DTN Oil

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange made modest daily changes during the final trade session of 2023, while down across the board in December, the fourth quarter and against year ago.

Friday's subdued trade session followed price volatility earlier in the truncated week as geopolitical risk emanating in the Red Sea region on Tuesday that lifted Brent and West Texas Intermediate (WTI) futures to four-week highs abated as several shipping companies said they would continue to use the Suez Canal-Red Sea. Iran-backed Houthi terrorists have attacked at least 21 international vessels transiting through the waterway since October in support of Hamas in its war with Israel. Israel declared war on Hamas, another Iranian-funded terrorist organization, following the inhumane attack Oct. 7 on Israeli citizens.

Shipping companies were increasingly rerouting transit between Europe and Asia away from the Suez Canal to around the Cape of Good Hope, adding 3,500 nautical miles and more than a week to the journey. On Dec. 19, the United States announced the formation of Operation Prosperity Guardian, a 10-country maritime coalition, to provide security for commercial shipping in the region. The maritime force along with increased naval presence by countries such as India that are not part of the coalition gave some shipping companies the confidence to return to scheduling voyage through the Red Sea, pressuring oil futures.

While fading during the final trade sessions of 2023, geopolitical risk is expected to underpin higher crude prices in 2024, as the attacks in the Red Sea could again ramp up, and the Houthis could target oil fields in Saudi Arabia from their bases in Yemen. Moreover, there have been numerous attacks in Iraq and Syria on U.S. forces that could escalate, while Israel has warned Lebanon that it would attack Hezbollah, a terrorist group also funded by Iran, if missile attacks into northern Israel don't stop.

Capping the upside in Brent prices in 2023 which held below $100 a barrel (bbl) despite war in Europe and the Middle East was growing supply, namely from the United States, Guyana and Brazil, despite production cuts by OPEC+.

OPEC+ announced Nov. 30 that several countries will reduce their production by another 2.2 million barrels per day (bpd) in the first quarter, lifting total output cuts to about 6 million bpd.

Energy Information Administration (EIA) expects additional cuts early next year will tighten the global oil supply-demand balance, projecting an 800,000-bpd shortfall that could lend upside price support. EIA sees a more closely aligned world supply-demand disposition for the rest of 2024.

ICE March Brent futures settled down $0.11 at $77.04 bbl, and NYMEX February WTI futures ended trading $0.12 lower at $71.65 bbl. On a spot continuous basis, Brent lost $5.79 or 7% in December, $18.27 or 23.7% in the fourth quarter, while down $8.87 or 10.3% on the year. WTI futures gave back $4.31 or 5.7% in value in December, while down $19.14 or 26.7% in the fourth quarter and $8.61 of 10.7% on the year.

NYMEX January ULSD future expired $0.0032 lower at $2.5531 gallon, with the February contract settling the session down $0.0114 at $2.5289 gallon. On a spot continuous basis, ULSD futures lost $0.2774 or 9.8% in value in December, $0.8091 or 31.7% in the fourth quarter, and on the year. ULSD futures ended both the third quarter and 2022 at $3.3622 gallon.

NYMEX January RBOB futures expired $0.0174 higher at $2.1026 gallon, with the February contract settling the session up $0.0066 at $2.1063 gallon. The gasoline contract fell $0.0972 or 4.4% in December, $0.3373 or 16% in the fourth quarter and $0.3569 or 14.5% on the year.

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