Ships no longer pass in the night….

Oil Trading Market Report - 11th to 15th December 2023

A better week for the bulls as oil prices bounced off their recent lows and had a more solid look to them for the first time in many a long week.?

OPEC’s continuing verbal push for higher prices, (the “words now deeds later” strategy), is being pushed to the back row as new influences arrive on the oil market stage.

A number of influential stories hit the wires, a weaker dollar, a drop in U.S. crude oil inventories, the American Federal Reserve bank declaring their readiness to cut interest rates during 2024 by up to 75 points, a more bullish forecast for oil prices from the IEA and if course from OPEC, and crucially increasing shipping and logistical problems creating longer, more expensive and dangerous shipping journeys for shipowners.

The?International Energy Agency (IEA) has updated its oil demand forecast for 2024, projecting an increase in global consumption by 1.1 million barrels per day (bpd). This adjustment, which cites an improved outlook for the U.S. economy (hand in hand with cuts in interest rates) and the influence of predicted lower oil prices, (especially gasoline) marks a significant shift from the IEA's previous stance. To say it’s puzzling is an understatement.

The direction of travel of the American economy has been a leading driver for oil prices in 2023 but turned out to be a very stormy and expensive spoof and 2024 won’t be any different, especially as every word that leaves FED chair Jerome Powell’s lips has for the most part been hijacked by AI led algorithmic trading platforms leading oil futures markets into confusion.

Meanwhile leaving algorithmic oil trading in the rear view mirror what could really strengthen oil prices in the coming weeks is the physical oil market space as shipowners head into strong logistical headwinds given more and more important oil transit points between geographic regions come under fire.

Rebel alliances in the Red Sea are stepping up rocket and drone attacks on Western shipping and this week saw a flurry of activity.

On Wednesday, rebels fired two missiles from a territory they hold in Yemen, targeting a commercial tanker that was carrying jet fuel from India headed to the Suez Canal via the Red Sea and?near the Bab el-Mandeb Strait. There were?further incidents on Friday, two Liberia-flagged ships came under attack in the Bab al-Mandab Strait from the Yemen, a U.S. defense official told Reuters.?Drones and ballistic missiles were used in Friday’s attacks, which caused fires on the ships, but didn’t result in any injuries.

The intensified attacks on commercial vessels around Yemen and the Bab el-Mandeb Strait have pushed up insurance premiums and have made some shipowners consider options to bypass the Suez Canal route and make a much longer journey around the Cape.

Maersk said on Thursday that its fuel carriers can bypass the Red Sea to avoid potential danger, according to company correspondence seen by Bloomberg. If carriers choose to bypass the Red Sea, it will also bypass the Suez Canal and add thousands of miles to their journeys, that means adding the?cost of hundreds of tonnes more fuel to transit via the Cape of Good Hope rather than the Horn of Africa. After the attacks marine insurance costs have ballooned higher to super high levels.

And just to add to the growing tension a?British warship shot down a suspected attack drone in the Red Sea during this weekend.?HMS Diamond, a Type 45 Destroyer, successfully destroyed the target on Saturday, Grant Shapps UK Defence Secretary reported.

The Ministry of Defence said it was the first time in decades the Royal Navy had shot an aerial target in anger.

The MoD did not say who was behind the incident, but Yemen's rebels have claimed responsibility for recent attacks in the Red Sea targeting?foreign ships in the area since the start of the Israel-Hamas war. They have declared support for Hamas and have said they were targeting ships travelling to Israel.?Merchant shipping was believed to be the drone's intended target in Saturday's incident, the Defence Secretary said.

Note: The Bab-El-Mandeb is a transit point via the Horn of Africa and vital to Global Energy supply and is a??strategic link between the Indian Ocean and the Mediterranean Sea?via the Red Sea and the Suez Canal.

Most exports of petroleum and natural gas from the Persian Gulf that transit the Suez Canal or the SUMED Pipeline pass through both the Bab el-Mandeb and the Strait of Hormuz.

The Bab el-Mandeb Strait is 18 miles wide at its narrowest point, limiting tanker traffic to two 2-mile-wide channels for inbound and outbound shipments and is an inevitable choke point for oil tankers and other commercial vessels.

Closure of the Bab el-Mandeb Strait could keep tankers originating in the Persian Gulf from transiting the Suez Canal or reaching the SUMED Pipeline, forcing them to divert around the southern tip of Africa.

One sixth of the Worlds commercial shipping transits this waterway ( around 50 ships per day) and the Red Sea.

In other news

The annual oil price prediction game has begun with some?analysts currently predicting that Brent crude will average around $84.43 a barrel in 2024, slightly higher than this year's average. This projection is influenced by a range of factors, including the anticipated impact of OPEC+'s production cuts and the overall economic climate. It doesn’t seem a bad call but so many volatile factors are in play in the World today it may be better to abandon the idea of trying to predict oil prices and just go with the flow !!

Meanwhile Bloomberg reports that those filling up with gasoline in Brisbane or Durban this holiday season have a good chance of pulling into a station that's part of the growing fuel-retailing empire of the world's biggest independent oil trader.

Bloomberg go on to say Vitol Group, either owns or has a share of over 8,800 gas stations worldwide. Those acquisitions give it a portfolio to rival some oil majors and will make the firm Africa's Number 2 retailer.?

In summary, the oil markets now have even bigger problems to deal with as shipping and logistics problems increase, higher costs and long journeys can only equal delayed cargo delivery and regional shortages of fuels waiting longer than ever for their oil supply.

The logistics of oil trading just got trickier than ever.?

This week’s closing guide prices:

ICE Brent 76.55 (+0.60)

WTI 71.43 (+0.11)

ICE gas oil 763.75 (-6.25)

Euro Mogas swaps 730.50 (+18.50)

Euro naphtha swaps 638.00 (+15.00)

Nymex gasoline 2.1370 (+7.34 cents /gallon)

LPG swaps 495.00 (-3.00)

Opec basket 76.77

Credit: Bob Haynes - Silvergreen Energy

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