Oil Prices Surge Amid Supply Squeeze and Robust US Demand

West Texas Intermediate Breaks Key $67 Barrier

Crude oil prices experienced a significant uptick, driven by tightening near-term supply conditions and positive signals for demand from the United States economy. West Texas Intermediate crude futures climbed 1.7%, settling comfortably above the $67 per barrel mark.

Supply Disruptions Bolster Market

The market found strength as data indicated a contraction in US crude inventories over the past week. Adding to supply concerns, Iraq reported a production loss of approximately 200,000 barrels daily due to drone attacks targeting fields in Kurdistan. Furthermore, Chevron announced it is nearing a production plateau at its major US oil field.

“While inventories globally have built very significantly, stocks in the pricing centres – especially in the US – are still quite low.”

—Daan Struyven, Head of Oil Research, Goldman Sachs

Goldman Sachs noted a shift in market sentiment, with attention now focused on potential downsides to supply. This comes as US distillate stockpiles remain at their lowest seasonal level since 1996, even after a recent increase.

Export Resumption Faces Hurdles

Offsetting some of the rally, Iraq’s federal government has approved a plan for its semi-autonomous Kurdish region to restart oil exports. These shipments have been halted since March 2023. The Kurdistan Regional Government is slated to supply Iraq’s state oil marketer SOMO with at least 230,000 barrels per day for export.

Forward Curve Reflects Tightness

Concerns over immediate supply availability are also evident in the crude oil forward curve, which is currently trading in backwardation. This market structure indicates that contracts for immediate delivery are commanding a premium over those for longer-dated futures.

The positive trend in oil prices aligns with broader market sentiment, as equity markets also advanced. This movement suggests that stronger-than-expected US economic data has successfully alleviated some anxieties regarding a potential decline in oil demand.

As of late 2023, global oil demand had recovered to pre-pandemic levels, reaching approximately 101.7 million barrels per day, according to the International Energy Agency (IEA, December 2023).