While oil and LNG production have not been impacted, a rising number of ship owners are diverting cargoes away from the Red Sea. US and UK airstrikes on Houthi targets in Yemen in response to attacks on tankers in the Red Sea by the Iran-backed group, have raised concerns that an escalation of the conflict could further disrupt the flow of oil via key trade chokepoints. Rising geopolitical tensions in the Middle East, which accounts for one-third of the world’s seaborne oil trade, has markets on edge at the start of 2024. At the time of writing, Brent futures were trading at $77/bbl. Fund exchange positioning slumped to its most bearish level in years. Prices declined last month amid comfortable physical balances, with record US oil supply making its way into the Atlantic Basin. Benchmark crude oil futures recovered by around $4/bbl from their mid-December lows as tensions in the Red Sea reignited geopolitical concerns.Preliminary data suggest that global inventories rose in December, as oil on water surged. Oil products decreased by a substantial 24.6 mb, while crude oil rose by 16.2 mb. A decline in oil on water (-12 mb) was partially offset by on-land stock builds (+3.6 mb). Global observed oil inventories were down by 8.4 mb in November, to their lowest since July 2022, with crude oil and middle distillates particularly tight.At the same time, estimated export revenues slumped to a six-month low of $14.4 billion, as Russian oil price discounts increased and benchmark oil prices declined. Crude shipments were up by 240 kb/d m-o-m to 5 mb/d while product flows rose by 260 kb/d. Russian oil exports rose by 500 kb/d to a nine-month high of 7.8 mb/d in December. However, the disparity between OECD and non-OECD runs will continue to widen, as new capacity starts in the Middle East, Africa, and China. Refinery crude throughputs are forecast to average 83.3 mb/d in 2024, overtaking 2018’s record of 82.5 mb/d. Divergence in regional refinery profitability narrowed further in December as margins in the Atlantic Basin weakened but strengthened in Singapore.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. Non-OPEC+ production will dominate growth this year, accounting for close to 1.5 mb/d. World oil supply is forecast to rise by 1.5 mb/d to a new high of 103.5 mb/d, fuelled by record-setting output from the US, Brazil, Guyana and Canada.Growth is projected to ease from 2.3 mb/d in 2023 to 1.2 mb/d in 2024, as macroeconomic headwinds, tighter efficiency standards and an expanding EV fleet compound the baseline effect. Global oil demand growth slowed to 1.7 mb/d y-o-y in 4Q23 – well below the 3.2 mb/d rate registered during 2Q23-3Q23, mirroring the unwinding of China’s post-pandemic release of travel demand.
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