2024.12.30

Oil Prices Rise Over 1% Amid US Crude Drawdown and Global Tensions

Oil prices climbed more than 1% on Friday, driven by a significant 4.2 million-barrel drop in U.S. crude stocks, exceeding analysts' expectations of a 1.9 million-barrel draw. Brent crude closed at $74.17 per barrel, and West Texas Intermediate (WTI) at $70.60, with both benchmarks gaining 1.4% for the week.

Key factors influencing the market included optimism over Chinese economic growth following stimulus measures and a World Bank forecast upgrade, as well as escalating tensions in the Russia-Ukraine conflict, raising fears of supply disruptions in 2025. Middle East developments, including Israeli and Yemeni conflicts, had limited immediate impact on oil prices but could pose risks due to potential U.S. sanctions enforcement under the upcoming Trump administration.

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NATO and Baltic Nations Respond to Suspected Undersea Cable Sabotage

Estonia has increased patrols around critical underwater infrastructure after a third suspected sabotage incident in the Baltic Sea, involving damage to power and data cables linking Estonia and Finland. This follows similar attacks in November and October, raising concerns over regional security. Estonia, a strong supporter of Ukraine, is moving away from Russian electricity supply and has engaged NATO and Baltic nations to bolster infrastructure defense.

Finnish authorities detained the Cook Islands-flagged vessel Eagle S, linked to the latest incident, for a suspected aggravated regulation offense. The vessel, allegedly part of Russia's shadow fleet, had passed over the damaged Estlink 2 power cable. Finnish Customs are investigating its cargo, and the European Commission condemned the sabotage, suggesting further sanctions targeting such fleets.

Estonia is also advocating for amendments to the United Nations Convention on the Law of the Seas (UNCLOS) to strengthen legal measures against sabotage in international waters. NATO Secretary General Mark Rutte affirmed the alliance’s commitment to enhancing its presence in the Baltic Sea.

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Big Oil Retreats from Renewables Amid Climate and Geopolitical Challenges

In 2024, major European oil companies like BP, Shell, and Equinor scaled back renewable energy investments to focus on higher-margin oil and gas projects, a trend expected to persist in 2025. Rising energy costs, geopolitical tensions, and shifting investor priorities drove this shift, with companies citing challenges such as inflation, supply chain bottlenecks, and stagnant government climate policies.

BP spun off most of its offshore wind projects, Shell exited power markets and reduced carbon targets, and Equinor cut back renewable spending by 8%. Meanwhile, U.S. oil majors Exxon and Chevron, which stayed committed to oil and gas, outperformed their European counterparts in shareholder returns.

This retrenchment poses a setback for global climate efforts, as 2024 is set to be the hottest year on record with rising carbon emissions. The return of climate-skeptic Donald Trump to the U.S. presidency in 2025, coupled with continued geopolitical instability, adds further uncertainty. Despite the challenges, analysts warn of potential pitfalls for oil-focused strategies, including slowing demand growth in China and increased debt levels among top oil producers.

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US Crude Stocks Drop Sharply on Strong Refinery Demand and Holiday Season Boost

U.S. crude inventories fell by 4.2 million barrels to 416.8 million barrels in the week ending December 20, exceeding analysts' expectations of a 1.9 million-barrel draw, according to the Energy Information Administration (EIA). The decline was driven by robust refinery activity, seasonal driving demand, and increased truck traffic during the holidays.

Key Highlights:

• Cushing Stock Levels: Crude stocks at the Cushing, Oklahoma hub dropped to 22.7 million barrels, nearing operational lows.

• Refinery Activity: Refinery crude runs increased by 205,000 barrels per day, with utilization rates rising to 92.5%.

• Distillate and Gasoline: Distillate stocks, including diesel and heating oil, fell by 1.7 million barrels, surpassing expectations, while gasoline stocks rose by 1.6 million barrels due to strong refinery output.

• Market Impact: Brent crude rose by 1.3% to $74.18 per barrel, and West Texas Intermediate (WTI) gained 1.4%, reaching $70.62. Gasoline and heating oil futures also saw modest increases.

The report reflects robust seasonal demand but hints at a potential decline in driving activity post-holiday season. Traders noted that year-end tax strategies and Gulf Coast refining dynamics also contributed to inventory movements.

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US Oil and Gas Rig Count Stagnant for Third Week Amid Market Pressures

U.S. oil and natural gas rig counts remained unchanged at 589 for the third consecutive week, according to sources latest report. This marks a 5.3% decline compared to the same period last year, with oil rigs at 483 and gas rigs at 102.

Key Highlights:

• Decline in Rig Activity: The rig count dropped by 20% in 2023 after significant growth in 2021 and 2022, reflecting reduced oil and gas prices, inflation-driven cost increases, and a focus on debt reduction and shareholder returns.

• Oil and Gas Prices: U.S. oil futures have fallen 2% in 2024 after an 11% drop in 2023, while natural gas futures rebounded 43% this year following a 44% decline last year.

• Production Outlook: U.S. crude production is projected to rise to 13.2 million barrels per day (bpd) in 2024 and 13.5 million bpd in 2025. Conversely, natural gas output is expected to decline to 103.2 billion cubic feet per day (bcfd) in 2024 from a record 103.8 bcfd in 2023 due to reduced drilling activity.

The stagnant rig count reflects industry caution amidst fluctuating energy prices, cost pressures, and shifting production strategies. Natural gas output, in particular, faces its first decline since the COVID-19 pandemic.

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Slovakia Weighs Retaliatory Actions Over Ukraine’s Gas Transit Halt

Slovak Prime Minister Robert Fico announced that Slovakia may consider halting backup electricity supplies to Ukraine if Kyiv ceases Russian gas transit through its territory starting January 1, 2025. The potential halt comes amid Ukraine's refusal to renew a gas transit deal with Moscow due to ongoing conflict.

Key Points:

• Economic Impact on Slovakia: Fico warned that stopping gas transit could cost Slovakia €500 million in transit fees and increase energy costs across the EU by €120 billion in 2025-2026.

• Reciprocal Measures: Slovakia might suspend electricity supplies to Ukraine during grid outages if alternative actions cannot be agreed upon.

• Energy Supply Preparedness: Slovakia asserts it can meet its gas needs through storage and contracts with non-Russian suppliers like BP, Shell, and ExxonMobil.

• Foreign Policy Shift: Since taking office, Fico has warmed relations with Russia, ceasing military aid to Ukraine but continuing humanitarian support and electricity exports, which rose by 152% year-on-year in 2024.

The escalating energy dispute underscores broader tensions in the region, with significant implications for EU energy stability and Slovakia-Ukraine relations.