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Crude oil futures surged this week, buoyed by escalated tensions in the Middle East, compelling major shipping firms to redirect vessels away from the Red Sea. Concurrently, production disruptions in Libya have also contributed to the surge.
The prevailing geopolitical risks are mitigating bearish U.S. stockpile data, indicating substantial increases in gasoline and diesel inventories, signaling sluggish demand for oil products.
Moreover, world oil demand experienced a modest rise of 1.3 million barrels per day in December, representing its slowest pace in nine months and falling 200,000 barrels per day below expectations, primarily attributable to a slowdown in industrial fuel consumption and reduced heating needs due to a milder winter, as highlighted by J.P. Morgan analysts on Friday.
Despite this, the latest U.S. government report unveiled an unexpected surge in nonfarm payrolls, up by 216,000 jobs in December, ostensibly bolstering demand for fuel products, according to analysts.
Similarly, in Europe, a decline in oil demand was reported in most countries, reflecting sustained weakness in industrial fuels and a reduced seasonal upsurge in heating oil owing to the milder winter.
Chinese demand performed better, averaging 16.4 million barrels per day in Q4, surpassing JPM’s estimates by 100,000 barrels per day.
Consequently, crude oil concluded the first week of 2024 with substantial gains, with front-month Nymex crude (CL1:COM) for February delivery soaring by 3% to $73.81 per barrel, while front-month March Brent crude (CO1:COM) also closed up by 2.2% at $78.76 per barrel.
Notably, after closing 2023 as the S&P 500’s second-worst performer, the energy sector (NYSEARCA:XLE) managed to claw back, ending the first week of the new year 1% higher.
However, the sector also saw significant fluctuations in individual stocks, with ZIM Integrated Shipping (ZIM) emerging as the top gainer, surging by 49.3%, while Vertex Energy (VTNR) suffered the most, plummeting by 36.2%, as reported by Barchart.com.