Oil Rebounds On Sudden Demand Optimism, Abating Red Sea Concerns

Meanwhile, Russia's oil export revenues decline: File Image/Pixabay

Despite oil underperforming so far in the new year due to a host of demand worries, all it took on Thursday to change trading patterns was the International Energy Agency forecasting strong demand growth in 2024.

That, combined with Washington reporting a substantial draw in crude inventories, caused West Texas Intermediate to settle up $1.52 at $74.08 per barrel; Brent settled up $1.22 to $79.10 per barrel.

In its monthly report, the IEA stated that oil demand would grow by 1.24 million barrels per day (bpd) in 2024, up 180,000 barrels from its previous forecast, and the third consecutive upward monthly revision.

The Agency wrote, "The consensus economic outlook has improved somewhat over the last few months in the wake of the recent dovish pivot in central bank policy.

"The fourth-quarter 2023 slump in oil prices acts as an additional tailwind."

The Organization of the Petroleum Exporting Countries (OPEC) projected even stronger demand in 2024 – on the order of 2.25 million bpd - and a "robust" boost in oil use in 2025 due to China and the Middle East.

As for U.S. crude stocks, according to the Energy Information Administration, they dropped 2.49 million barrels last week and are currently at their lowest level since October.

Thursday also saw a perceived lessening of concerns about the Red Sea chaos, even though shipping costs have escalated due to merchant vessels being diverted around Africa.

Jim Ritterbusch, president of Ritterbusch and Associates, said, "The turmoil in the Mideast has kicked up freight and insurance rates appreciably but [has] not yet affected total global oil supply other than delaying shipments toward Europe and other regions."

In other oil news on Thursday, the IEA reported that despite oil exports from Russia increasing by 500,000 bpd to 7.8 million bpd in December, export revenues hit a six month low, to $14.4 billion.

The Agency attributed the decline to the outcome of increased discounts of Russian oil prices compared to benchmarks, as well as the overall decline in international benchmark prices.