Master Select 5

Crude oil trading reminder: Red Sea concerns eased, oil prices continued to fall by more than 3%, hitting a new low in more than a week

Concerns about supply disruptions due to escalating tensions in the Middle East eased on Thursday (December 28) as more shipping companies expressed their willingness to transit the Red Sea route, and the market focused on the U.S. Energy Information Administration's daily reports on crude oil and refined product inventories. Crude oil futures were lower on the weekly report.

The settlement price of WTI crude oil futures February 2024 contract closed at US$71.77/barrel, a decrease of 3.16% or US$2.34/barrel. It once hit a new weekly low of US$71.70/barrel during the session.

(U.S. West Texas Intermediate (WTI) crude oil futures chart)

The settlement price of the February 2024 Brent crude oil futures contract was reported at US$78.39/barrel, a decrease of 1.58% or US$1.26/barrel.

[Market News Analysis]

From now on, almost all container ships sailing between Asia and Europe will route through the Suez Canal, with only a handful diverted around Africa, a breakdown of the group's timetable by Denmark's Maersk showed on Thursday. container ship. Major shipping lines including container giants Maersk and Hapag-Lloyd stopped using the Red Sea route and the Suez Canal earlier this month after Yemen's Houthi rebel group began targeting ships, disrupting global operations trading.

France's CMA CGM also said it would increase the number of ships transiting the Suez Canal, which it announced earlier this week.

"The perception is that the Red Sea routes are reopening and will bring supply to the market within a few weeks," said Phil Flynn, an analyst at Price Futures Group.

Major shipping lines were hit after Yemen's Houthi rebels began attacking ships earlier this month. Stop using the Red Sea route and the Suez Canal. Meanwhile, a U.S.-led coalition aimed at easing tensions in the Red Sea has yet to produce the coordinated action that had been hoped for.

Redmond Wong, market strategist at Saxo Bank, said that although the attack on the Red Sea ship may make the market nervous, signs of increasing U.S. crude oil inventories may put downward pressure on crude oil prices.

The U.S. Energy Information Administration reported that U.S. crude oil inventories fell much more than expected last week, limiting price declines for the time being. The latest data from the U.S. Energy Information Administration (EIA) shows that U.S. EIA crude oil inventories fell by 7.114 million barrels in the week of December 22, the largest weekly decline since August. Analysts expected a decrease of 2.88025 million barrels, while the previous value increased by 2.909 million barrels. A rise in U.S. crude oil inventories at Cushing has partially offset a decline in national inventories, leaving a mixed picture for demand. But Cushing crude inventories climbed to their highest level since August. Crude oil futures trading volumes continued to be sluggish over the holiday period, with trading volumes in the past eight trading days below the 50-day average.

Crude has gained nearly 8% since December lows as Houthi attacks on ships in the Red Sea force tankers and other vessels to divert to longer voyages, increasing costs. Nearly half of the container fleet that regularly transits the Red Sea currently avoids this route.

UBS analyst Giovanni Staunovo said further price declines followed, likely because much of the crude traders were focusing on came from the U.S. Gulf Coast region, where refineries are busy Clean out inventory to avoid hefty storage taxes at the end of the year. Data showed that U.S. Gulf Coast crude oil inventories fell by 11.03 million barrels, the largest drop since August.

The four-week average supply of U.S. crude oil products was 20.724 million barrels per day, a decrease of 0.52% from the same period last year.

The increase in EIA strategic petroleum reserve inventories in the United States in the week to December 22 was the largest since the week of September 1, 2023. The EIA Strategic Petroleum Reserve inventory in the United States for the week to December 22 was the highest since the week of June 2, 2023. The EIA crude oil inventory decline in the United States in the week to December 22 was the largest since the week of August 25, 2023. U.S. Midwest gasoline inventories rose last week to their highest level since April 2022. Total U.S. petroleum product exports rose to an all-time high in the latest week. Equipment utilization in the U.S. Midwest rose to a record high in the latest week.

Peter Cardillo, chief market economist at Spartan Capital, noted that "the increase in inventories reported by the API is an unexpected news." If later U.S. Energy Information Administration data shows an increase in inventories, it will mark the second consecutive increase in inventories. An unexpected inventory increase this week will have a negative impact on oil prices.

Data show that the number of people filing for unemployment benefits in the United States in the week ending December 23 was 218,000, a slight increase from the previous month. These (employment) numbers tend to be unstable around the holidays, and the four-week moving average was little changed last week at 212,000, the lowest since late October. The four-week moving average can reflect employment trends more clearly.

Although initial jobless claims rose last week, they remained near record lows, a further sign of companies' reluctance to lay off workers amid steady demand. Economists expect nonfarm payrolls, due to be released next week, to still grow by a healthy 170,000 people, consistent with strong employment demand, which has been a key driver of economic growth. Such job growth reinforces some predictions that Federal Reserve officials will succeed in achieving a soft landing for the economy after nearly two years of aggressive interest rate hikes.

"The market may try to move upward again...perhaps at the beginning of the new year on expectations that fuel demand will recover due to monetary easing in the United States and increased kerosene demand in the northern hemisphere winter," said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.

OPEC's 2023 production curbs failed to spark a long-term bull run in crude bids as several smaller members snubbed the oil cartel's voluntary output caps, triggering Angola's withdrawal from the oil group's pact. Crude output still exceeds global oil demand despite major members committing to continued production cuts, especially Saudi Arabia, which has cut production by more than one million barrels per day.

Another event that also deserves investors' attention is that Mandara Capital, a London-based oil trader, will shut down its business. The company was once one of the largest market makers in crude oil and fuels. Company founder Muwaffaq Salti said the shutdown process is ongoing. Mandara trades derivatives of refined products such as crude oil, gasoline and fuel oil. Salti was the global head of fuel trading at JPMorgan Chase before founding the company. After Mandara's initial success, some traders left around 2015 to start their own businesses, and similar companies were born. They include Onyx Commodities Ltd., the largest derivatives trader by volume, and Dare International Ltd., both of which have expanded their operations in recent years to trade more commodities.

[Friday’s trading day focuses on financial data and events (Beijing time)]

① 15:00 Nationwide house price index monthly rate in the UK in December

② 16:00 KOF economic leading indicator in Switzerland in December

③ 22:45 Chicago PMI in the United States in December

④ 02:00 the next day The total number of oil rigs in the United States for the week to December 29