DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange (NYMEX) oil futures and Brent crude traded on the Intercontinental Exchange fell more than 2% on Friday. Both crude benchmarks registered their first weekly losses of February pressured by growing optimism that the beginning of Gaza peace talks today in Paris could deliver a ceasefire agreement between Israel and Hamas in a move that would ease the geopolitical temperature in the Middle East region.

Media airways on Friday were hit with reports suggesting high-ranking officials from Israel, United States, Qatar and Egypt arrived today in Paris to broker a ceasefire agreement between Israel and Hamas. Analysts say the talks appear to be the most serious push in weeks to halt hostilities in Gaza.

Although no physical oil supplies have been disrupted, the lingering threat of the Gaza war spilling into a broader regional conflict has kept the oil market on edge. Just this week, Iran-aligned Houthis militia vowed to step up attacks on commercial vessels in the Red Sea region, threatening to use new "submarine weapons."

Houthi militants have launched over a dozen drones and missile strikes in the Bab al-Mandab Strait and the Gulf of Aden since early November, forcing ships to go around the Cape of Good Hope, Africa's southern tip.

So far, there have been no signs of Russia rerouting oil cargoes heading to Asia around Africa, which would increase the transit time by weeks and sharply raise costs for Indian and Chinese refineries. According to tanker-tracking data compiled by Bloomberg, eight out of 10 tankers passing through the Bab El-Mandeb Strait are carrying Russian oil.

Friday's move lower also follows Thursday's inventory report from the U.S. Energy Information Administration (EIA) showing commercial oil supplies increased for the fourth consecutive week through Feb. 16 as domestic refineries struggle to raise runs. A combination of heavy seasonal maintenance and unplanned downtime pressed the U.S. refinery run rate to near a 10-month low 80.6% of capacity last week. Nationwide, U.S. refineries processed 14.6 million barrels per day (bpd) last week, which was 436,000 bpd or 2.6% below the 2023 processing rate.

Offsetting weakness in domestic refinery runs, U.S. crude exports surged to nearly 5 million bpd last week, up 653,000 bpd, showed EIA data. On a four-week basis, exports broke above 4.2 million bpd, nearly 700,000 bpd higher year-on-year. Strength in crude exports helped to limit builds in domestic crude stocks.

Last week, The International Energy Agency (IEA) released a rather bearish market outlook for 2024, forecasting a larger supply surplus for the year as growth in non-OPEC crude supply outpaces lackluster demand growth. Paris-based agency estimates world oil consumption to grow annually by 1.2 million bpd this year, down from a 2.3 million bpd annual growth rate in 2023.

"Global oil demand growth is losing momentum, with annual gains easing from 2.8 mb/d in 3Q23 to 1.8mb/d in 4Q23," said IEA in its monthly Oil Market Report. "A sharp drop in China underpinned an 830 kb/d decline in global oil demand to 102.1 mb/d in the last quarter of 2023."

On the session, NYMEX West Texas Intermediate contract for April delivery slipped below the 200-day moving average of $77.60 barrell(bbl) to settle at $76.49 bbl, down $2.12. Front-month Brent futures declined $2.05 to $81.62 bbl. NYMEX March RBOB futures dropped back $0.0580 to $2.2767 gallon, while NYMEX March ULSD futures moved $0.0623 lower to finish the session at $2.6897 gallon.

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