Energy
Tuesday, July 23rd, 2024 2:31 pm EDT
Key Points
- Crude Oil Prices Drop: Crude oil futures fell to their lowest levels in over a month, with West Texas Intermediate (WTI) at $77.94 per barrel and Brent at $81.97 per barrel. Despite these recent declines, both benchmarks have seen significant year-to-date gains (WTI up 8.7% and Brent up 6.4%).
- Market Indifference to Middle East Tensions: The oil market has largely ignored recent conflicts between Israel and Houthi militants in Yemen, including drone strikes and airstrikes affecting oil facilities. As a result, the oil price risk premium has diminished, reflecting minimal impact on crude supplies from these geopolitical events.
- Challenges and Forecasts: U.S. gasoline demand has been soft, declining by 615,000 barrels per day, which, combined with increased inventory and lower crude oil prices, suggests a potential market downturn. Additionally, wildfires in Alberta pose a risk to Canadian crude supplies, with the worst of the wildfire season likely still to come. UBS forecasts a slight undersupply in the oil market by 200,000 barrels per day in 2024, assuming continued healthy demand growth.
On Tuesday, crude oil futures fell to their lowest levels in over a month, reflecting a broader market trend largely indifferent to recent geopolitical tensions in the Middle East. Specifically, West Texas Intermediate (WTI) crude dropped to $77.94 per barrel, a decrease of 0.59%, while Brent crude fell to $81.97 per barrel, down 0.55%. Despite these declines, both benchmarks have seen year-to-date gains, with WTI up 8.7% and Brent up 6.4%. Other energy commodities also experienced declines, with RBOB gasoline falling to $2.46 per gallon, a drop of 0.45%, and natural gas decreasing to $2.22 per thousand cubic feet, down 1.38%.
The recent market movements come amidst ongoing conflicts between Israel and Houthi militants in Yemen. The Houthis launched a drone strike on Tel Aviv on Friday, resulting in one fatality, which prompted Israeli airstrikes on Houthi targets near the Al Hudaydah Port in Yemen, including oil facilities. However, despite these events, the oil market has largely discounted the risk premium traditionally associated with Middle Eastern conflicts. According to a Goldman Sachs report, the market has mostly overlooked these tensions as a threat to crude oil supplies.
Additionally, summer gasoline demand has failed to buoy crude oil prices, with U.S. gasoline demand declining by 615,000 barrels per day for the week ending July 12, despite a forecasted tighter market for the third quarter. This lack of support for higher prices is reflected in the recent softening of oil market conditions, described by analyst John Evans as potentially heading into a period of stagnation.
The oil market also faces potential risks from wildfires in Alberta, Canada. Although production has remained steady so far, the ongoing wildfire season poses a significant threat, with about a third of the wildfires burning out of control and endangering 400,000 barrels per day of production. Goldman Sachs notes that the worst of the wildfire season may still be ahead.
Looking forward, UBS projects a slight undersupply in the oil market for 2024, estimating a shortfall of 200,000 barrels per day, with healthy demand growth expected to persist throughout the year.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/07/23/oil-prices-drop-to-lowest-levels-in-more-than-a-month.html
