Oil Rises on Falling US Stockpiles and More Attacks in Red Sea

By Bloomberg

Jan 10, 2024

image is BloomburgMedia_S6ZDQOT1UM0W00_10-01-2024_05-14-56_638404416000000000.jpg

Oil storage tanks in the Keihin industrial area in Kawasaki, Kanagawa Prefecture, Japan, on Monday, April 10, 2023. Saudi Arabia hiked official selling prices for all of its oil sales to Asian customers in May, days after the kingdom led a surprise OPEC+ output cut. Photographer: Toru Hanai/Bloomberg

(Bloomberg) -- Oil rose on signs that US crude stockpiles are continuing to drop, and as more attacks on vessels in the Red Sea raised the risk that Middle East supply could be disrupted.

Brent gained toward $78 a barrel, while West Texas Intermediate was above $72. The American Petroleum Institute said nationwide inventories fell 5.2 million barrels last week, with levels at Cushing also down. The Energy Information Administration, meanwhile, forecast a narrow global supply deficit.

Iran-backed Houthi rebels launched further attacks on merchant vessels in the southern Red Sea, although no injuries or damage were reported. The incidents — which have continued despite a US-led maritime force being deployed — are seen as a spillover from the Israel-Hamas war.

Crude has seesawed since the start of the year, rising and falling on alternate days, as traders attempt to gauge the outlook for the coming quarters. The market has been supported by OPEC+ supply cuts, tensions in the Middle East including the Red Sea, and outages in Libya. Still, a deep reduction in official prices by Saudi Arabia has suggested that there’s underlying weakness.

“The confluence of factors surrounding the Middle East developments, a conflicting supply outlook, and slow global growth have been driving this wider indecision in prices,” said Yeap Jun Rong, a market strategist for IG Asia Pte.

Widely watched crude timespreads reflect a slightly firmer near-term market, with the gap between the two nearest Brent contracts at 36 cents a barrel in a bullish, backwardated structure — when prompt barrels trade at premiums to later ones. That compares with 11 cents in backwardation a week ago.

Brent closed almost 2% higher on Tuesday after the EIA said in a monthly outlook that global oil demand will outrun supply by 120,000 barrels a day in 2024. Overall US crude stockpiles shrank 4.1% in December, the biggest monthly drop since June 2021, and the EIA will release fresh data later on Wednesday.

By Yongchang Chin