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Crude Oil Prices Advance Amid Modest US Inventory Growth and Reduced Output Growth Forecasts

ByDayne Lee

Feb 7, 2024

Crude Oil Prices Advance Amid Modest US Inventory Growth and Reduced Output Growth Forecasts

On February 7th, the crude oil market witnessed a slight uptick for the third consecutive day, buoyed by a combination of factors that signaled a tightening supply outlook. Notably, industry data revealed that the increase in U.S. oil inventories fell short of expectations, and a significant revision in the U.S. oil production growth forecast by the U.S. Energy Information Administration (EIA) further supported prices.

Analyzing the Shift in Oil Market Dynamics

Brent crude futures experienced a modest increase of 16 cents, reaching $78.75 a barrel, while U.S. West Texas Intermediate (WTI) crude saw a 20-cent rise to $73.51. This upward movement reflects the market’s response to the American Petroleum Institute’s report, which indicated a 670,000 barrel rise in U.S. crude stocks for the week ending February 2nd—substantially below the 1.9 million barrel increase analysts had anticipated.

Revised Outlook on U.S. Oil Production

The EIA’s announcement of reducing its 2024 domestic oil output growth forecast by 120,000 barrels per day (bpd) to 170,000 bpd marks a significant downturn from the previous year’s growth of 1.02 million bpd. This adjustment suggests a more constrained supply scenario than previously expected, with the EIA projecting that U.S. production will not surpass the December 2023 record of over 13.3 million bpd until February 2025. Analysts from Haitong Futures have interpreted these developments as indicative of a balanced oil market in 2024, expecting prices to hover within a $10 range around current levels.

Geopolitical Tensions and Oil Supply

The backdrop of these market movements is a complex geopolitical landscape, particularly in the Middle East. The U.S., along with Qatari and Egyptian mediators, are making diplomatic efforts to negotiate a ceasefire between Israel and Hamas in Gaza. The situation has been closely monitored by traders, especially given recent disruptions in the Red Sea caused by Houthi attacks on shipping routes. These incidents have raised concerns over potential impacts on global oil trade, given the strategic importance of the Suez Canal as a vital link between Asia and Europe.

Despite these tensions, analysts at ING, Warren Patterson and Ewa Manthey, have noted that while trade flows have been affected, oil production remains unchanged. This observation underscores the resilience of oil supply chains despite geopolitical challenges.

Boost in Oil Supply from Guyana

An additional factor contributing to the current oil supply landscape is the increased production from Guyana. A consortium led by Exxon Mobil, which oversees all oil production in the South American nation, has ramped up output to about 645,000 bpd, up from approximately 400,000 bpd in late 2023. This boost in production introduces a new dynamic to the global oil supply equation, potentially offsetting some of the tightening effects of reduced U.S. output growth and inventory build-ups.

Conclusion and Market Outlook

The oil market is at a crossroads, influenced by a mix of supply constraints, geopolitical tensions, and emerging production sources. While recent developments have lent support to oil prices, the market remains sensitive to changes in global economic conditions, policy shifts, and further developments in the geopolitical arena. The interplay of these factors will continue to shape the trajectory of oil prices in the coming months, highlighting the importance of closely monitoring market signals and geopolitical developments.

As the market navigates through these uncertainties, stakeholders will be keenly watching for any signs that could indicate shifts in supply and demand dynamics, with a particular focus on how geopolitical events and policy decisions may impact global oil flows and pricing strategies.

Featured image credit: bashta via iStock

Dayne Lee

With a foundation in financial day trading, I transitioned to my current role as an editor, where I prioritize accuracy and reader engagement in our content. I excel in collaborating with writers to ensure top-quality news coverage. This shift from finance to journalism has been both challenging and rewarding, driving my commitment to editorial excellence.