Oil prices maintained stability during Asian trade on Wednesday, influenced by unexpected U.S. crude stockpile growth that raised concerns about market conditions in 2024. Despite these concerns, heightened geopolitical unrest in the Middle East, particularly in the Red Sea, kept prices trading at two-week highs.
The recent attacks by the Yemen-backed Houthi group on vessels in the Red Sea prompted a sharp rebound in crude prices from near five-month lows. The development raised concerns about potential disruptions in Middle Eastern oil supplies, leading to increased tensions in the region.
In response to the escalating situation, the U.S. announced the establishment of a naval task force to oversee the Red Sea region. Several oil companies and shipping operators declared their intent to avoid the Suez Canal, opting for the longer route around the Cape of Good Hope. This decision could result in possible delays in fuel deliveries to Europe and across the Atlantic, given that approximately 12% of global shipping traffic passes through the canal.
The Houthi attacks were reportedly retaliatory actions for the Israel-Gaza war, initiated after the U.S. vetoed a United Nations motion for a ceasefire in the conflict. The prospect of more supply disruptions due to the conflict, with the potential involvement of other Middle Eastern powers, contributed to the upward trajectory of oil prices.
As of Wednesday, Brent oil futures expiring in January held steady at $79.25 a barrel, while West Texas Intermediate crude futures rose 0.2% to $74.34 a barrel, both trading near two-week highs.
However, the recent rebound in oil prices faced a slight setback following data from the American Petroleum Institute (API) indicating an unexpected increase in U.S. crude inventories during the week ending December 15. The API reported a growth of 0.9 million barrels, contrary to expectations for a draw of 2.2 million barrels. This data suggests that U.S. supplies remain ample as production hits record-high levels to compensate for the output gap left by the Organization of Petroleum Exporting Countries (OPEC).
Investors are awaiting official inventory data scheduled for later on Wednesday, which is expected to provide additional insights into U.S. fuel demand and refinery output heading into the end of 2023.
Although the prospect of no further interest rate hikes by the Federal Reserve has contributed to optimism about demand in the coming year, the well-supplied market is anticipated to limit significant gains in oil prices. Goldman Sachs recently revised its forecast for Brent in 2024 to a range of $70 to $90 a barrel, acknowledging expectations of robust supply and resilient demand amidst falling U.S. interest rates and China’s economic recovery.
Persistent concerns over high supply levels and subdued demand, particularly in light of weak economic indicators from China, had pushed oil prices close to five-month lows earlier in December. Despite the recent rebound, both Brent and WTI prices are poised to conclude 2023 in negative territory.