The oil market had a fairly choppy session on Friday, with ICE Brent trading within a range of $2.79 a barrel. Brent briefly surpassed $80 per barrel amid ongoing tension in the Middle East, specifically the Red Sea, following US and UK airstrikes against the Houthis in Yemen. However, the market was unable to maintain these previous gains. While geopolitical risks are certainly increasing, we are not yet seeing a reduction in oil supply as a result of developments in the region. But it is clear that the greater the escalation we see in the region, the market will likely have to start pricing in the greater risk of supply disruptions.
Speculators increased their position in ICE Brent during the last reporting week, increasing their net long position by 38,905 lots, leaving them with a net long position of 208,748 lots as of last Tuesday, the largest position they have held since October. The movement was mainly driven by new long positions, with a gross increase of 29,942 lots during the period. Speculators also increased their net long position in NYMEX WTI, increasing the net long position by 21,799 lots to 111,129 lots last Tuesday. Although in the case of WTI, the movement was largely due to the covering of short positions, with a gross drop in short positions by 20,138 lots.
Gas storage in Europe has now reached less than 80% capacity, and colder weather over the past week saw the highest daily withdrawals from storage so far this winter. However, storage remains above the five-year average of 68% capacity for this time of year. For now, we continue to assume that European storage will end this heating season at 52% capacity, suggesting a limited rise in gas prices in Europe.
The US natural gas market has seen increased volatility in recent days, with a significant rise in spot prices on Friday. While Henry Hub front-month futures closed almost 7% higher on Friday, spot prices rose more than 300% to over US$13/MMBtu due to largely frigid weather conditions. from North America. Obviously, colder weather will cause greater demand for heating. However, there are also risks to supply, as freezing conditions are expected in Texas, which could lead to disruptions to natural gas infrastructure. Although front-month futures have given back much of Friday’s gains in early morning trading today.
There is a lot on the energy calendar this week. On Wednesday, China will release its industrial production figures for December, which will include data on crude oil production and refinery activity. OPEC will also release its latest monthly market report on the same day, which will include its latest 2024 outlook for the oil market. On Thursday, the International Energy Agency will release its latest oil market report, while China will release its second batch of trade data, which will include more detailed figures on energy trade. Additionally, since today is a holiday in the US, the usual weekly API and EIA inventory numbers will be delayed by one day.