Negative sentiment prevailed in the oil market for most of the week. The weak economic performance leads traders to suspect that oil demand will be relatively low in 2024. The geopolitical tensions had little traction in the market until yesterday (January 3). On that day, a relatively minor incident in Libya caused tensions to flare up again.
The decline in oil prices continued for most of last week . On Thursday, December 28, Brent crude was trading at $77,15 per barrel. The oil price fell until Tuesday, January 2. On that day, the price reached $75,89. The price is now on the rise again. On Wednesday, January 3, the price rose significantly to $79,99.
At the moment, weak economic results in particular are weighing on sentiment in the oil market. A recent report from investment bank J.P. Morgan gives a clear picture of the weak economic situation. The bank expects the market to remain reasonably balanced in 2024, before ending in a slight increase or decrease. According to the investment bank, higher interest rates in the Western world will gain traction on the market this year. This affects consumer spending, causing industrial activities to decline.
The announcement of a new OPEC meeting did not change the negative sentiment. In a recent newsletter from ING it is reasoned that due to various production declines in recent months, there is little room to reduce supply. In total, the countries plan to cut their targets by 2,2 million barrels per day in the first quarter of 2024. Analysts already have little confidence that OPEC will be able to implement the current lower targets. This explains why the announcement of the new meeting has little traction in the market. In addition, a recent report from the International Energy Agency (IEA) shows that higher oil production in countries outside OPEC will more than offset growth in oil demand in 2024. The agency estimates that oil demand will grow to 2024 million barrels per day by 1,1, while the supply from countries outside the cartel will grow to 1,2 million barrels.
tensions
Until Wednesday, geopolitical tensions also had little effect on oil prices. This weekend the situation in the Red Sea escalated further. After a new attack by the Houthis on a container ship owned by the Maersk shipping company, the United States Navy decided to launch an attack on the rebels. As a result of the attack, three Houthi ships sank. After the United States' action, Iran decided to station a warship in the area. However, according to analyst Sanford Bernstein, there were no consequences for the physical oil market, meaning that markets remained reasonably balanced despite the looming risk, Bloomberg writes.
That the situation is still precarious became clear again on Wednesday, January 3, when protests at the Libyan Sharara field resulted in lower production. In total, production fell by 300.000 barrels per day. The fact that the oil market is so affected by a relatively minor incident is a bad sign. According to analysts, the lower production also fuels fears of lower supply due to possible disruptions in the Red Sea. Especially because it is not exceptional that the supply of the Sharara field is lower due to protests.
Meanwhile, the diesel price will actually increase significantly in the new year. On Thursday, December 28, diesel was trading for €125,67 per 100 liters. Around New Year's Eve, the diesel price reached its lowest point at €124,48. However, on Tuesday January 2, the price shot up again to €128,61. The higher price appears to be due to greater demand from industry and transport now that the holidays are over.