Market Insights: Navigating Recent Trends in Energy and Petrochemicals – Week of 8 January 2024
As of January 11, 2023, the global oil market continues to navigate through a complex landscape marked by various factors. The front month NYMEX WTI crude futures closed slightly lower at $72.02 per barrel, and Brent concluded at $77.41 per barrel, showing a marginal decline of $0.18.
This bearish sentiment is reinforced by Saudi Arabia’s decision to cut the February price of Arab light crude to Asia, reaching its lowest point in 27 months. Despite supply disruptions in Libya and escalating geopolitical tensions in the Middle East, exemplified by a hijacked oil tanker in the Gulf of Oman, confidence in the oil market is dwindling.
Financial speculators are responding to this sentiment, with a notable contraction in money managers’ net long positions. On the U.S. front, even with reduced refinery runs, there’s been a net increase of 1.3 million barrels (MMbbl) of crude in U.S. commercial storage, along with significant builds in gasoline and distillates. These stockpiles are nearing the five-year average, reflecting persistent demand challenges.
Anticipating a slight tightening of the liquids market in Q1 2024, we expect stocks to draw as the market fully absorbs OPEC+ cuts. Short-term forecasts remain steady, anticipating a Q1 tightening and H2 recovery with a stronger seasonal demand.
In the gas sector, Henry Hub’s future prices experienced a 10% increase, settling at $3.097 per MMBtu on January 11, driven by colder weather forecasts. While North America braces for a temperature drop, the market’s stability is influenced by the prospect of warmer weather later in January and the resilience of U.S. dry gas production, averaging 104 Bcf/d in January. Additionally, ample inventory, more than 11% above the five-year average, provides a cushion for the U.S. Lower-48 gas storage.
Contrastingly, in Europe, despite an anticipated temperature drop, TTF prices fell by 6.9% to $9.924 per MMBtu on January 11, reflecting high storage levels ensuring sufficient supply during cold days.
Propane prices at Mont Belvieu surged by 15.5%, closing at 79.63 cents per gallon on January 11. This rise, amid stable crude oil prices, aligns with the approaching arctic blast in North America. The current inventory levels are robust enough to handle short-term disruptions due to weather, despite ongoing logistical challenges, such as congestion in the Panama Canal and disruptions in major shipping routes.
Ethane prices rose significantly by 19.0%, closing at 23.50 cents per gallon, paralleling the increase in natural gas prices. The global economic conditions, coupled with Saudi Arabia’s decision to raise its ethane price, contribute to this unexpected shift.
In the Asian naphtha market, prices decreased to $647.00 per metric ton, down 1.4% from the previous week. However, naphtha crack spreads widened, reaching -9.87 dollars per barrel, influenced by reduced refinery runs in China, supply chain constraints due to geopolitical tensions, and vessel capacity issues in major shipping routes.
As we navigate these dynamic market conditions, the interplay of global events and regional dynamics continues to shape the trajectory of oil and gas markets. Stay tuned for further updates on these evolving trends.
Vice President, Energy and Feedstocks | NGL & Naphtha
Associate Director, Energy Insights