Providing coverage of Alaska and northern Canada's oil and gas industry
February 2024

Vol. 29, No.6 Week of February 11, 2024

ANS regains high $70s

Crude up on setback in US-backed Gaza ceasefire talks, weaker dollar

Steve Sutherlin

Petroleum News

Alaska North Slope crude edged up 33 cents Feb. 7 to close at $79.41 per barrel, as West Texas Intermediate added 55 cents to close at $73.86 and Brent added 62 cents to close at $79.21.

It was the third day of gains, coinciding with a setback in U.S.-backed peace talks aimed at a ceasefire between Israel and Hamas in Gaza.

On Feb. 7, Hamas answered a peace proposal from the talks with a counteroffer asking for the release of thousands of Hamas prisoners, but Israeli Prime Minister Benjamin Netanyahu rejected the terms.

"Giving in to Hamas's bizarre demands, that we heard right now, not only won't bring the release of hostages, it will just invite another massacre," Netanyahu said at a press conference.

Israel plans to continue toward its goal to eliminate Hamas, Netanyahu said, adding that Israel is confident it can neutralize the threat from the rebels within months.

The specter of continued hostilities in the region counteracted a large add to U.S. crude inventories reported by the U.S. Energy Information Administration on Jan 7. Commercial crude inventories for the week ended Jan. 2 jumped 5.5 million barrels to 427.4 million barrels -- 4% below the five-year average for the time of year.

Fuel inventories saw more bullish patterns, as total motor gasoline inventories were drawn down by 3.1 million barrels for the period and are about 1% below the five-year average for the time of year, according to the EIA. Distillate fuel inventories decreased by 3.2 million barrels -- 7% below the five-year average for the time of year.

Another bullish factor for crude prices is the weakening of the U.S. dollar, making oil more affordable for holders of other currencies. The dollar index, which measures the greenback against six major currencies, fell to 103.99 in early trading Feb. 8.

ANS rose 58 cents Feb. 6 to close at $79.08, while WTI gained 53 cents to close at $73.31 and Brent rose 60 cents to close at $78.59.

Prices were buoyed by EIA estimates released Feb. 6 of lower domestic oil growth in 2024.

The EIA cut its oil growth forecast for 2024 by 120,000 barrels per day to 170,000 bpd, sharply below the 2023 output increase of 1.02 million bpd.

On Feb. 5, ANS leapt $1.55 to close at $78.50, WTI added 50 cents to close at $72.78 and Brent gained 66 cents to close at $77.99.

ANS marked its nadir on Feb. 2 for the Wednesday-to-Wednesday trading week, plummeting $2.63 to close at $76.95. WTI plunged $1.54 on the day to close at $72.28 and Brent slid $1.37 to close at $77.33.

ANS plunged $1.95 Feb. 1 to close at $79.57, while WTI plunged $2.03 to close at $73.82 and Brent plummeted $3.01 to close at $78.70.

ANS recovered to $79.41 by Feb. 7, however, cutting its loss over the Wednesday-to-Wednesday span to just $2.11 below its Jan. 31 close of $81.52.

ANS traded at a $5.55 premium to WTI on Feb. 7, while it led Brent by a margin of 20 cents per barrel.

Hollub: Crude shortage in 2025

World oil markets will enter a supply shortage by the end of 2025 due to failure to replace current crude reserves fast enough, Occidental CEO Vicki Hollub told CNBC Feb. 5.

Some 97% of the oil produced today was discovered in the 20th century, but the world has replaced less than 50% of the crude produced over the last decade, Hollub said.

"We're in a situation now where in a couple of years' time we're going to be very short on supply," she said.

For now, the market is oversupplied, as the U.S., Brazil, Canada and Guyana pump record amounts of crude, but the supply and demand outlook will flip by the end of 2025, Hollub said.

"The market is out of balance right now, but again, this is a short-term demand issue," Hollub said. "But it's going to be a long-term supply issue."

Oil prices may have "room to run" in 2024, according to Rebecca Babin, CIBC Private Wealth U.S. senior energy trader.

Babin doesn't think oil prices have "peaked" yet, she said in a Feb. 6 Yahoo Finance Live interview, adding that people "overly" fixate on "downside risks" around China and U.S. supply, ignoring potential demand upside.

Oil demand was "consistently revised higher" in 2023, a trend that could persist in 2024, she said.

"I think when analysts are looking at 2024, there's two numbers they're least confident in," Babin said. "The first is China demand -- which they're very concerned is going to undershoot, and the second is U.S. supply growth."

In 2023, U.S. producers outperformed most analysts' expectations on supply growth based on better efficiency, better use of capital, and longer laterals, she said.

"It's really a tricky, tricky market in terms of nailing down those numbers," she said. "But I think most analysts are pretty confident that the market is well-supported and crude fundamentally kind of around that $70 a barrel in WTI."

"Everyone seems to be very focused on these downside risks - and really kind of taking their eye off the ball -- there are a couple of things that could go right for crude this year" she said. "We could actually see demand outperform."

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