The oil market managed to settle higher last week with Brent up 2.23% over the first trading week of 2024. Middle East tensions and Libyan supply disruptions provided a boost to oil prices. Although with the oil balance fairly comfortable over the first half of 2024, significant upside is likely limited (assuming no escalation in the Middle East).
The more comfortable market is also reflected in the Saudis latest official selling prices (OSPs) for February loadings. Cuts were seen across the board with the flagship Arab Light into Asia cut by US$2/bbl MoM to leave it at US$1.50/bbl over the benchmark. The decrease was larger than the market was expecting. OSPs for all grades into Europe, the Med and the US were also cut for February.
After protests last week forced Libya to shut the Sharara oilfield (the largest in the country), Libya’s National Oil Corporation has now declared force majeure at the field. The shutting of the oil field saw total Libyan oil output fall from around 1.2m b/d to 981k b/d on Friday. According to S&P Global Commodity Insights, the nearby El-Feel field which has a capacity of 70k b/d was also shut last week.
The latest positioning report shows that speculators reduced their net long in ICE Brent over the last reporting week by 29,532 lots to 169,843 lots as of last Tuesday. This move was predominantly driven by fresh shorts entering the market, with the gross short increasing by 28,578 lots over the week. Meanwhile, speculators also reduced their net long in NYMEX WTI by 35,869 lots over the period to 89,330 lots. This reduction was also predominantly driven by fresh shorts entering the market. However, given the increase we have seen in prices since Tuesday we could have seen some of these shorts covering already.
There is not a tremendous amount on the energy calendar this week. Apart from the usual weekly inventory reports, the EIA will publish its latest Short Term Energy Outlook, which will include its latest US oil production forecasts for 2024 and its first forecasts for 2025. Last month the EIA forecast that 2024 US output would grow by around 190 b/d to 13.11m b/d. US output has surprised to the upside in recent months, which has contributed to the broader weakness seen in the oil market. And then on Friday, China will release its first batch of trade data for December, which will include oil imports.
