Crude oil prices experienced a notable increase on January 1, 2024, driven by escalating geopolitical tensions in regions such as Venezuela and the ongoing conflict between Ukraine and Russia. The price of January WTI crude oil rose by $0.51, or 0.91%, while January RBOB gasoline increased by $0.0340, reflecting a broader bullish trend in the market.
Several factors contributed to this rally. A weaker US dollar and a stronger stock market provided additional support for crude prices. Notably, a report from Baker Hughes indicated that the number of active US oil rigs fell to a 4.25-year low, suggesting a decrease in US crude oil production. This decline signals potential supply constraints in the market, further bolstering prices.
In Venezuela, the situation remains critical as President Donald Trump ordered a “total and complete blockade” of all sanctioned oil tankers entering or leaving the country. Recently, the US Coast Guard boarded the non-sanctioned Centuries tanker in the Caribbean, and US forces are actively pursuing the Bella 1 tanker, which is en route to Venezuela. These actions are expected to tighten the already strained oil supply from the region.
Further complicating the oil landscape, Ukraine has intensified its military operations against Russian oil interests. It marked a significant escalation by targeting a Russian shadow oil tanker in the Mediterranean Sea with drones for the first time. According to Vortexa, the volume of crude oil stored on tankers that had remained stationary for at least seven days dropped by 7% week-over-week, totaling 107.15 million barrels as of December 19, 2023. Over the past three months, Ukrainian drone and missile strikes have targeted at least 28 Russian refineries, disrupting Russia’s crude oil export capabilities and contributing to a tighter global supply.
Beyond the immediate tensions, new sanctions from the US and the European Union on Russian oil companies, infrastructure, and tankers have further restricted Russian oil exports. In a bid to stabilize the market, OPEC+ announced on November 30 that it would maintain its pause on production increases during the first quarter of 2026. The organization plans to restore the 2.2 million barrels per day production cut implemented in early 2024 but still has 1.2 million barrels per day to restore.
OPEC+ also revealed that its crude production decreased by 10,000 barrels per day in November, reaching 29.09 million barrels per day. In a recent assessment, OPEC revised its global oil market estimates, shifting from a projected deficit to a surplus, with a 500,000 barrels per day surplus expected for the third quarter of 2023. This adjustment comes as US production has exceeded expectations, contributing to the overall supply dynamics.
The Energy Information Administration (EIA) has also raised its forecast for US crude production in 2025 to 13.59 million barrels per day, up from 13.53 million barrels per day. As of December 12, US crude oil inventories were 4.0% below the seasonal five-year average, while gasoline inventories were 0.4% below and distillate inventories fell 5.7% below the five-year seasonal average.
As of December 12, US crude oil production witnessed a slight decline of 0.1% week-over-week, totaling 13.843 million barrels per day, just shy of the recent record high of 13.862 million barrels per day recorded in early November. The Baker Hughes report from December 19 indicated a decrease of 8 active oil rigs, marking the 4.25-year low of 406 rigs. The number of US oil rigs has significantly decreased from a high of 627 rigs reported in December 2022.
The interplay of these geopolitical factors and supply adjustments is likely to continue influencing crude oil prices as the global market navigates these challenges. The ongoing situation underscores the fragility of oil supply chains and the potential for further price volatility in the coming months.
