Oil Futures and Market Outlook

Oil futures experienced minimal movement on Thursday morning as traders carefully considered the future demand for oil and the potential disruptions to supply due to ongoing unrest in the Middle East.

Price Movements

• West Texas Intermediate crude for February delivery (CL00, +0.12% CL.1, +0.12% CLG24, +0.12%) stood unchanged at $72.55 per barrel on the New York Mercantile Exchange.
• March Brent crude (BRN00, -0.06% BRNH24, -0.06%), the global benchmark, declined by 21 cents or 0.3%, reaching $77.67 per barrel on ICE Futures Europe.

Market Drivers

According to the International Energy Agency (IEA), oil demand growth is expected to slow down from 2.3 million barrels a day in 2023 to 1.2 million barrels a day in 2024. This would bring the average daily demand to 103 million barrels. Previously, the estimated demand growth for 2024 was 1.1 million barrels a day.

The Organization of the Petroleum Exporting Countries (OPEC) released a monthly report stating that global oil demand will increase by 2.2 million barrels per day this year, which remains unchanged from its earlier projection.

Despite recent attacks on shipping by Yemen-based Houthi militants, who are supported by Iran, oil traders have largely overlooked the potential for a wider conflict in the Middle East. Such attacks have resulted in tankers and cargo ships being redirected.

Pakistan Launches Retaliatory Airstrikes on Iran, Escalating Tensions

Pakistan's air force conducted retaliatory airstrikes on Iran early Thursday, reportedly targeting militant positions. The attack resulted in the death of at least seven individuals, further exacerbating tensions between the two neighboring nations. This airstrike follows Iran's assault on Pakistani territory earlier this week, which tragically claimed the lives of two children in the Balochistan province.

Potential Impact on Crude Supplies

Analysts suggest that this ongoing conflict poses a considerable risk to crude supplies originating from the Middle East. However, market participants seem hesitant to react without explicit confirmation of a wider conflict. Previous letdowns and the International Energy Agency's (IEA) report indicating that non-OPEC+ supply is growing faster than global demand have contributed to this cautious approach. Will Atcheson, an energy sector specialist at Jefferies, emphasizes that despite OPEC's monthly report which points to demand growth surpassing IEA estimates, leading to potential tight markets in the second half of 2024, market sentiments remain somewhat reserved.

U.S. Crude Inventories

The American Petroleum Institute released data late Tuesday, revealing that U.S. crude inventories experienced a minor increase of 483,000 barrels last week. The official data from the Energy Information Administration is scheduled to be released on Thursday morning.

Oil and Gas Inventory Forecast

Analysts surveyed by S&P Global Commodity Insights have provided their predictions on the upcoming inventory levels for crude oil, gasoline, and distillate stocks. Here are the expected changes:

Crude Oil

• The average forecast shows a rise of 93,000 barrels in crude inventories.

Gasoline

• Gasoline inventories are projected to increase by 3.6 million barrels to reach approximately 248.6 million barrels.
• If this estimate holds true, it would mark a one-year high in gasoline stocks.

Distillate Stocks

• Analysts forecast a rise of 1.9 million barrels in distillate stocks, bringing the total to around 134.3 million barrels.
• If this prediction is accurate, it would be the highest level of distillate stocks in over two years.