DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange (NYMEX) oil futures and Brent crude traded on the Intercontinental Exchange advanced more than 4% during the first week of 2024, underpinned by a geopolitical risk premium in the Middle East following a series of deadly attacks in Iran, Lebanon and Iraq. Meanwhile, Houthi militia escalated assaults on commercial vessels in the Bab el-Mandab Strait of the Red Sea.

Mounting tensions in the Middle East dominated the headlines in the oil market this week, including a U.S. drone strike in Baghdad that killed the commander of an Iranian-backed militia in Iraq on Thursday and twin explosions in central Iran on Wednesday claimed by ISIS that killed more than 80 civilians. The Iraqi government said Friday it has begun the process to remove the U.S.-led international military coalition stationed in the country since 2004, according to the statement released by the office of Prime Minister Mohammed Shia al-Sudani. The move could further destabilize the volatile region that has been rocked by the Israel-Hamas war and attacks on commercial shipping by the Houthi militia.

Robert McNally, president and founder of Rapidan Energy Group, said this week that "the market is too complacent" as no party is willing to de-escalate tensions at this point. "I think there must be at least $12 of geopolitical risk premium," McNally told Blomberg TV this week.

Additionally, a supply disruption at Libya's largest oil field, El Sharara, this week caused by antigovernment protests halted operations across the Murzuq Basin. As of Friday afternoon, the protests in response to high fuel prices and lack of economic opportunity in southern Libya continued to shut in the 300,000 barrels per day (bpd) El Sharara and 70,000 bpd El Feel oil fields. It is unclear when operations can resume. Both oil fields have been frequently targeted by protesters and rival militias since the downfall of Moammar Qadhafi in 2011.

Geopolitical risk offset a bearish inventory report from the U.S. Energy Information Administration (EIA) released Thursday showing total refined fuel supplies in the United States spiked more than 22 million barrels (bbl) during the final week of December. Included in the increase was a 10.9 million bbl build in gasoline inventories and a 10.2 million bbl increase in distillate fuel stockpiles.

The report showed gasoline demand collapsed to the second lowest weekly rate of 2023 at 7.954 million bpd, down 1.24 million bpd or 13% from the previous week. While it's not unusual for gasoline demand to soften into the New Year's holidays, the curve of the weekly decline was pronounced compared to pre-pandemic years.

Demand for middle distillates did not fare any better, eroding to the lowest weekly rate of 2023 at 2.658 million bpd, down 1.32 million bpd. Distillate fuel consumption closely correlates with industrial activity, with the U.S. manufacturing index released by the Institute of Supply Management on Wednesday showing the industrial economy contracted for the 14th consecutive month in December.

At settlement, February West Texas Intermediate (WTI) futures on NYMEX rallied $1.62 to $73.81 bbl, and the international crude benchmark Brent contract for March delivery advanced $1.17 bbl to $78.76 bbl. NYMEX February ULSD futures added $0.0201 to $2.6085 gallon, while NYMEX February RBOB futures slipped $0.0046 to $2.1055 gallon.

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