The oil market reversed to the upside in January 2024 after two consequent months of bearish dynamics supported by realized and potential supply disruptions which outweighed economic issues. Both ICE Brent and NYMEX WTI front-month futures soared to their respective 3-month highs of $83.5 and $78.0 as of January 26, adding 8.5% and 8.9% to the close levels of December and heading towards their best monthly performances in a half-year period (since July 2023).
The oil market reversed to the upside in January 2024 after two consequent months of bearish dynamics supported by realized and potential supply disruptions which outweighed economic issues. Both ICE Brent and NYMEX WTI front-month futures soared to their respective 3-month highs of $83.5 and $78.0 as of January 26, adding 8.5% and 8.9% to the close levels of December and heading towards their best monthly performances in a half-year period (since July 2023). However, this upswing wasn’t monotonic and the market spent the most part of the month moving sideways as the lack of immediate impact on oil flows from attacks in the Red Sea calmed worries about geopolitical risks while economic indicators from major economies painted a picture of potential weakness in oil demand. The bullish trend was established only during the last decade of January as severe cold weather in the United States, particularly in North Dakota, curbed crude oil output while new Houthi attacks in the Red Sea and several attacks on U.S. military bases in the Middle East again fueled concerns regarding maritime trade routes and overall geopolitical stability in the region. Looking ahead, the situation in the Middle East in general and the Red Sea in particular will continue to be the major factor influencing crude oil futures quotes short-term. However, from a longer-term perspective, only a full-scale conflict in the Middle East region will be sufficient to push crude oil prices considerably higher and for longer, in our opinion, as demand-related concerns attributed to expected economic slowdown in major oil-consuming economies, including the United States and China, in 2024 year will continue to weigh on crude oil prices, at least during the first half of the year.
The last monthly report of the U.S. Energy Information Administration (EIA) suggests that global oil production exhibited a slight month-over-month decrease in December 2023, down by 34 thousand barrels per day (kbd) relative to the prior month, a marginal reduction of 0.03% MoM. This change marked a certain shift in the dynamics as it interrupts an upward trend previously sustained over 3 months. Year-over-year analysis painted a contrasting picture, with global oil production increasing by 2.2 million barrels per day (mbd), a substantial uptick of 2.2% YoY. This increase confirmed an ongoing upward trend spanning 4 months and was notably the fastest annual growth for the last 6 months. Moving further, the December 2023 production level showed a significant deviation from the 5-year average for the same month. The production was higher by 3.6 mbd, equating to a 3.6% increase. Also, it is worthwhile to note, that global oil output remained in December close to its all-time high, posting the 3rd straight month of the production exceeding the threshold of 102 mbd. Angola’s decision to leave the cartel after 16 years of membership amid a dispute over oil production quotas which was announced after the last semi-annual OPEC+ meeting resulted in a notable divergence between OPEC and non-OPEC oil production dynamics in December 2023. However, taking Angola’s swing into consideration, remaining OPEC states produced moderately more oil in December than during the previous month while the non-OPEC block delivered a minor contraction of its aggregate oil output.
The International Energy Agency (IEA) forecasts world oil supply to rise by 1.5 mbd this year to a new historical high of 103.5 mbd. Non-OPEC+ production will dominate the growth, accounting for close to 1.5 mbd. The non-OPEC Americas – led by the United States, Brazil, Guyana and Canada – will provide the main output expansion in 2024, just as the region did last year. By contrast, OPEC+ supply is expected to hold broadly steady on last year, assuming extra voluntary cuts that started this month are phased out gradually in 2Q24. However, after a steep rise in output in 4Q23, global oil supply is expected to decline this month as a blast of cold weather sweeping through the United States and Canada takes a toll on oil operations.
OPEC total crude oil production exhibited a notable downturn in December 2023 relative to the month prior linked with Angola’s decision to leave the cartel after 16 years of membership amid a dispute over oil production quotas. So, the month witnessed a substantial reduction in production by 1.14 mbd from the previous month, amounting to a 4.1% MoM decrease. This reduction in output resulted in the lowest output level in the past 29 months (more than 2.5 years), continuing a downward month-over-month trend that has persisted for two months. Notably, this also was the steepest rate of monthly decline observed in the past 41 months (since July 2020). However, taking Angola’s swing into consideration, OPEC total output of crude oil even modestly increased in December 2023 relative to November 2023, growing by 73 kbd, or +0.3% MoM. Year-over-year analysis revealed a similarly significant downward trend. Compared to the same month in the previous year, December 2023 saw a reduction in production by 2.40 mbd, translating to an 8.2% YoY decline. This drop confirmed a downward year-over-year trend spanning 9 months, marking the fastest annual decline over the last 32 months. The most OPEC-participating countries saw a reduction in their output in December 2023 on a monthly basis with Saudi Arabia and Kuwait contributed substantially to the overall decline in OPEC total production while a few managed to increase their production, with Nigeria leading in terms of the production increase.
The IEA and the EIA estimates of total OPEC crude oil production in December 2023 were marginally higher and lower, respectively, comparing to cartel’s own assessments. In particular, the IEA's estimation slightly exceeded OPEC’s one, registering at 27.02 mbd, marking a relative increase of approximately 1.2%. On the other hand, the EIA posited a somewhat more conservative estimate at 26.61 mbd, which is lower than OPEC's figure by about 0.3%. The analysis of OPEC’s December 2023 crude oil production data provided by the three vendors elucidates the variances in estimates across key OPEC nations as well. While some countries like Saudi Arabia, Iran and Iraq showed only moderate deviations, others like the U.A.E. and Nigeria exhibited significant discrepancies.
Total non-OPEC oil production exhibited a significant upward trajectory in December, driven by Angola’s decision to leave the OPEC and therefore to join the non-OPEC group of oil producing countries. So, the month witnessed a substantial increase in production, with a month-over-month growth of 1.1 mbd, amounting to a 1.6% MoM rise. This surge pushed the volume of total oil output of non-OPEC nations to a new all-time high of 70.51 mbd, sustaining an upward trajectory for the 4th straight month and being the most impressive monthly gain in the last 26 months. Year-over-year metrics presented an even more impressive picture. The production saw a remarkable increase of 4.62 mbd compared to December of the previous year, translating into a 7.0% YoY growth. This performance was part of a sustained upward YoY trend extending over 32 months, denoting a robust and consistent enhancement in aggregate non-OPEC oil production. Moreover, when juxtaposed against the 5-year average for the same month, the total non-OPEC oil production exhibited a marked growth as well, increasing by 5.29 mbd, a notable improvement of 8.1%. The better half of non-OPEC nations delivered positive changes of their oil production in December 2023 comparing to the prior month. Countries like Angola and Russia led the monthly growth with significant increases, indicating a robust short-term upswing in their oil production. Angola, in particular, demonstrated a remarkable recovery, not just on a monthly basis but also annually, reflecting a strong resurgence in its oil industry after its departure from the OPEC. Russia, despite a modest monthly increase, faced a contrasting output decline in annual terms. Conversely, Brazil and the United States, while at the lower end of the monthly performance scale, exhibited significant annual growth.
U.S. total oil production landscape presented a mixed picture in December 2023. On the one hand, the period witnessed a monthly decline in oil output, a drop of 122 kbd, translating to a 0.5% decrease from the previous month. This downturn was particularly notable as it broke an upward MoM trend that had been sustained for 9 months. Furthermore, this decline was also significant in its magnitude, marking the steepest monthly drop experienced in the past 12 months. On the other hand, contrasting this short-term decline, the year-over-year data provided a robust picture of growth. Compared to the same month in the previous year, total oil production in the United States ramped up by an impressive 2.39 mbd, indicating an 11.9% YoY increase. This increment was part of a continuous upward YoY trend spanning 33 months, confirming sustained long-term growth in the U.S. oil supply. The acceleration was also pronounced, with this period recording the fastest annual surge observed in the last 22 months, reinforcing the positive long-term outlook. A broader perspective is offered by the comparison with the 5-year average for the same month. The December 2023 production figures stood 2.83 mbd higher than the average as well, marking a substantial 14.4% increase.
The production of shale oil in the United States exhibited a notable increase in December 2023, making a significant contribution to the country's overall oil output. The shale oil output reached 10.06 mbd, representing an increase of 155 kbd from the previous month, or a 1.6% MoM growth. This increase was not only the fastest monthly expansion for almost a year but also pushed the output to the new highest volume recorded over the whole history of observations. Year-over-year, the production of shale oil in the U.S. surge was even more pronounced, with an increase of 908 kbd compared to December 2022, equating to a 9.9% YoY rise. This substantial YoY growth has been consistent, as evidenced by the upward trend persisting for 32 months, showcasing the resilience and expansion of shale oil production in the U.S. When compared to the 5-year average for December, total shale oil production in the United States was significantly higher by 1.36 mbd, reflecting a 15.7% increase and highlighting its growing importance in the U.S. oil landscape. Major US shale oil fields delivered mixed production dynamics in December 2023 although the overall production was considerably higher than in November 2023. The Bakken field led in terms of monthly output growth, while the Permian also showed significant increases. Eagle Ford's production was essentially flat relative to a month ago while Niobrara and Anadarko, conversely, produced less shale oil in December in compare to the month prior.
Global oil demand growth slowed to 1.7 mbd year-over-year in 4Q23 according to the IEA’s most recent monthly report – well below the 3.2 mbd YoY rate registered during 2Q23-3Q23, mirroring the unwinding of China’s post-pandemic release of travel demand. Moreover, the pace of demand growth outside of China slowed significantly, to around 300 kbd on average during 2H23. As for the 2024 outlook, increases in global oil demand are set to halve from 2.3 mbd in 2023 to 1.2 mbd this year, with the post-Covid recovery all but complete, GDP growth below trend in major economies, and as energy efficiency improvements and electrification of the vehicle fleet curb oil use. China will continue to lead oil demand growth in 2024, with its expanding petrochemical sector gaining an ever-larger share.
Meantime, the EIA data suggests that global consumption of crude oil and petroleum products exhibited a notable progression in December 2023. The month-over-month dynamics were characterized by an absolute increase of 1.74 mbd which implies a relative upsurge of 1.7% MoM. This increment was the most profound monthly gain in a half-year period. Moreover, the month under review set a new record high in the global oil consumption, which climbed up to 103.0 mbd for the first time in history. Year-over-year analysis painted a similarly robust picture. There was an absolute climb in consumption by 2.24 mbd, paralleled by a 2.2% YoY increase. This growth was part of a sustained yearly upward trajectory that had been ongoing for 12 months. In a broader temporal context, December 2023 stood out significantly when compared to the five-year average for the same month. The month registered an absolute surge of 3.49 mbd, a notable 3.5% elevation above the half-decade norm. Both OECD and non-OECD groups of countries show an overall increase in oil consumption in December 2023, with the non-OECD block displaying a slightly stronger growth both in monthly and annual terms.
The most recent monthly report of the IEA suggests that global observed oil inventories were down by 8.4 million barrels (mb) in November 2023, sinking to their lowest level since July 2022, with crude oil and middle distillates stocks particularly tight. A decline in oil on water inventories which shrank by 12 mb relative to a month ago was partially offset by on-land stock builds which built up by 3.6 mb. Petroleum product inventories decreased by a substantial 24.6 mb, while crude oil stockpiles rose by 16.2 mb. According to the preliminary data, global inventories rose in December 2023, as oil on water surged.
Detailed data provided by the IEA for October 2023 confirmed that total oil inventories in the OECD exhibited a notable decline in the reported month, both in a month-over-month and year-over-year context. More exactly, the overall stocks decreased by 4.8 million tons from the previous month, marking a -1.0% MoM depletion. This decline drove the inventories to their new lowest level in the last 80 months (more than 6.5 years). Moreover, October 2023 had witnessed the steepest monthly contraction of the stockpiles in the last 7 months. From an annual perspective, the situation mirrors the monthly dynamics. The total OECD oil inventories experienced a decrease of 7.2 million tons compared to the same month of the previous year, translating to a -1.5% YoY change. This ongoing reduction had been part of a downward YoY trend lasting for 9 months with the rate of YoY drop being the most rapid observed in the last 6 months. Furthermore, when compared to the 5-year average for the same month, the October 2023 inventory levels were 56.2 million tons lower, providing a significant drop of -10.8%.
U.S. total oil inventories experienced a marginal contraction in December 2023 in compare to the previous month, decreasing by 2.2 mb to 1613.4 mb. This change, representing a subtle dip of 0.1% MoM, underscored a period of relative stability in inventory levels as the stocks are continuing to fluctuate in a tight range of 1590-1620 mb for the 10th straight month. In contrast, the year-over-year analysis painted a different picture. There was a notable increase of about 19.7 mb compared to the same period last year, translating into a 1.2% YoY growth. When viewed against the backdrop of a 5-year average, the inventories in December 2023 were lower by a considerable 225.1 mb, marking a 12.2% decrease from the historical norm. The marginal monthly decline of the U.S. total oil inventories in December 2023 was driven by a certain shrinkage of the commercial oil stocks in the country, while the Strategic Petroleum Reserves (SPR) again saw a minor increase within the month.
The crude oil inventories at Cushing, Oklahoma, presented significant changes both on a monthly and yearly basis in December 2023. In particular, the stocks experienced an increase of almost 7.0 mb from the preceding month, representing a substantial 25.1% MoM rise. This surge led to a record in stocks volumes, marking the highest level observed over the last 6 months. Year-over-year analysis reveals a more pronounced shift. Compared to December 2022, the stockpiles increased by 9.4 mb, equating to an impressive 37.2% YoY escalation. This change was even more significant as it represented the fastest year-over-year rate of growth witnessed in the last 5 months, underscoring a robust upward trajectory in oil inventories on an annual scale. However, the inventories were 5.2 mb lower in October 2023 than the 5-year average for the same month, translating to a 13.0% decrease.
The offshore oil inventories worldwide experienced a significant month-over-month decline December 2023, with stocks decreasing by approximately 3.24 mb, equating to a 3.8% drop from the previous month. This trend was further accentuated when considering the year-over-year dynamics, which showed a substantial reduction of 18.64 mb in inventory levels compared to the same month in the previous year, marking an 18.4% YoY decrease. However, when juxtaposed against the 5-year average for the same month, the December 2023 inventories of oil held offshore appeared to be in a relatively better position. The reported value was 5.44 mb higher than the 5-year average, representing a 7.0% increase. The overall monthly dynamics of global offshore oil inventories were predominantly influenced by significant stock reductions in Asia and the US Gulf Coast. Conversely, the Middle East Gulf displayed an opposing trend, contributing to an increase in global inventories. Europe and the North Sea also contributed to the decrease as well, but to a lesser extent, while West Africa had a minimal impact on the overall global stocks change.