Oil prices lifted by Middle East tensions, outweighing demand concerns for now

Crude oil futures rose this week, helped by increased tensions in the Middle East that have caused major shipping companies to divert vessels away from the Red Sea, as well as production disruptions in Libya.

The geopolitical risks are offsetting bearish U.S. stockpile data that showed “massive” increases in gasoline and diesel inventories, signaling sluggish demand for oil products.

World oil demand rose by 1.3M bbl/day in December, the slowest pace in nine months and 200K bbl/day below expectations, as industrial fuel use slowed and a warm winter cut heating needs, J.P. Morgan analysts said Friday.

In the U.S., the bank sees December gasoline demand coming in at 8.6M bbl/day, 100K/day less than forecast two weeks ago.

But the latest U.S. government report showing nonfarm payrolls rising by a greater than expected 216K jobs in December would appear to support demand for fuel products, analysts said.

In Europe, oil demand declined in most countries due to continued weakness in industrial fuels and a lower seasonal uptake in heating oil caused by a milder winter.

In China, demand averaged 16.4M bbl/day in Q4, 100K bbl/day above JPM’s estimates.

Crude oil finished the first week of 2024 with gains, as front-month Nymex crude (CL1:COM) for February delivery ended +3% to $73.81/bbl and front-month March Brent crude (CO1:COM) closed +2.2% to $78.76/bbl.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI)

After finishing 2023 as the second-worst performer among S&P 500 sectors, energy (NYSEARCA:XLE) ended the first week of the new year +1%.

Top 10 gainers in energy and natural resources during the past 5 days: ZIM Integrated Shipping (ZIM) +49.3%, Scully Royalty (SRL) +21.9%, Ramaco Resources (METC) +18.4%, Capital Product Partners (CPLP) +16.6%, Stealthgas (GASS) +16%, Via Renewables (VIA) +13.7%, Teekay Tankers (TNK) +12.1%, Frontline (FRO) +11.3%, DHT Holdings (DHT) +11.2%, Pyxis Tankers (PXS) +11.1%.

Top 10 decliners in energy and natural resources during the past 5 days: Vertex Energy (VTNR) -36.2%, Nuscale Power (SMR) -22%, TPI Composite (TPIC) -20%, Dakota Gold (DC) -18%, American Battery Technology (ABAT) -16.5%, Contango Ore (CTO) -16.4%, Aemetis (AMTX) -15.6%, Brooge Energy (BROG) -15.1%, Piedmont Lithium (PLL) -15.1%, Coeur Mining (CDE) -14.7%.

Source: Barchart.com