Oil Market Retraces Gains Amid Easing Red Sea Shipping Concerns

Market Insights
Heating Oil
December 29, 2023

Recap: The oil market fell on Thursday as concerns over shipping disruptions along the Red Sea route eased. According to a shipping schedule, Denmark's Maersk will route almost all container vessels sailing between Asia and Europe through the Suez Canal from now on while diverting only a handful around Africa. The crude market posted a high of $74.40 overnight before it continued to retrace its previous gains. It traded to $72.69 in the morning ahead of the release of the EIA’s weekly petroleum stocks report. Following the release of the EIA’s petroleum status report, which showed a larger than expected draw of over 7 million barrels on the week, the crude market initially moved higher towards the $74.00 level. However, the market later erased those gains and sold off, retracing more than 50% of its move from a low of $67.98 to a high of $76.18 as it posted a low of $71.72 ahead of the close. The February WTI contract settled down $2.34 at $71.77 and the February Brent contract settled down $1.26 at $78.39. The product markets also ended the session lower, with the heating oil market settling down 6.76 cents at $2.5563 and the RB market settling down 6.98 cents at $2.0852.

Technical AnalysisThe crude market will likely remain range bound on Friday, ahead of the long New Year’s holiday weekend. While concerns over shipping disruptions have eased, the market will continue to monitor the situation in the Middle East. The crude market is seen finding support at its low of $71.72 followed by $71.11, $70.99, $70.64, $69.82 and $67.98. Meanwhile resistance is seen at $73.15, $73.85, its highs of $74.40, $75.66 and $76.18. 

Fundamental News: The EIA reported that U.S. crude stocks fell more than expected by 7.1 million barrels in the week ending December 22nd. It reported that U.S. exports of total petroleum products in the latest week increased to 7.2 million bpd, the highest level on record. The EIA also reported that U.S. Midwest refinery utilization increased to 101.7%, the highest on record. U.S. Midwest gasoline stocks increased to 52.4 million barrels, the highest level since April 2022.

On Wednesday, Saudi Arabia’s state news agency said, citing the full royal speech addressed to the kingdom's advisory Shura Council, that Saudi Arabia has worked to support the stability and balance of global oil markets by playing a pivotal role in establishing and maintaining the agreement of the OPEC+ alliance.

Denmark's Maersk will sail almost all container vessels travelling between Asia and Europe through the Suez Canal from now on while diverting only a handful around Africa. A shipping schedule showed that while Maersk had diverted 26 of its own ships around the Cape of Good Hope in the last 10 days or so, only five more were scheduled to start the same journey. By contrast, more than 50 Maersk vessels are set to go via Suez in coming weeks. However, Maersk said alliance partner Mediterranean Shipping Company continued to divert all MSC vessels via the Cape of Good Hope for the time being, regardless of date or point of departure and the direction they were sailing in. On Wednesday, Hapag Lloyd said it still considered the situation too dangerous to pass through the Suez Canal, adding that it planned to review the situation on Friday.

North Dakota’s Department of Mineral Resources reported that the state’s oil production averaged 1.24 million bpd in October, down 3.7% on the month.

Early Market Call - as of 8:15 AM EDT

WTI - February $72.26, up 49 cents

RBOB - January $2.0998, up 1.46 cents

HO - January $2.5581, up 18 points

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