Oil futures settled lower on Thursday, pulling back as news of an Israel-Hamas cease-fire deal helped to ease some worries about risks to global supplies - though the agreement has reportedly hit a snag and has yet to take effect.
Prices on Wednesday had settled at their highest since mid-August, buoyed by data that showed an eighth straight decline in U.S. crude inventories, as well as the Biden administration's decision last week to impose new sanctions to crack down on Russian crude exports.
Price moves
-- West Texas Intermediate crude for February delivery CL.1 CLG25 fell $1.36, or 1.7%, to settle at $78.68 a barrel on the New York Mercantile Exchange, after trading as high as $80.59.
-- March Brent crude BRN00 BRNH25, the global benchmark, lost 74 cents, or 0.9%, at $81.29 a barrel on ICE Futures Europe. WTI and Brent futures both ended Wednesday at their highest since Aug. 12.
-- February gasoline RBG25 shed nearly 1.7 % to $2.12 a gallon, while February heating oil HOG25 tacked on 0.1% to $2.62 a gallon.
-- Natural gas for February delivery NGG25 settled at $4.26 per million British thermal units, up 4.3% and ending Thursday at its highest since Dec. 30, 2022.
Market drivers
The recent cease-fire agreement between Israel and Hamas has "temporarily relieved" the oil market, said Antonio Di Giacomo, senior market analyst at XS.com, in market commentary. The agreement has "partly mitigated concerns about potential disruptions in oil supply in the region."
However, this temporary relief has "not sufficiently reversed the upward price trend," he said. U.S. benchmark crude prices on Wednesday had climbed by more than 3% and are trading 9.7% higher so far in the new year.
Israel delayed a cabinet vote on the cease-fire deal in Gaza after Prime Minister Benjamin Netanyahu said Hamas reneged on parts of the agreement ahead of the deal's planned implementation on Sunday, according to the Wall Street Journal.
Meanwhile, the oil market continues to focus on the "uncertainty around Russian oil supply following the announcement of stricter U.S. sanctions against the Russian energy sector," Warren Patterson and Ewa Manthey, commodity strategists at ING, said in a note.
The U.S. Treasury Department announced sanctions Friday targeting two major Russian oil producers, Gazprom Neft and Surgutneftegas. It also imposed sanctions on 183 oil-carrying vessels, Russia-based oilfield-service providers and Russian energy officials.
"While there was a fair amount of scenario analysis needed to be worked into market expectations in December, few saw the current U.S. administration turning seaborne oil flows on their head in January," Brian Leisen, an analyst at RBC Capital Markets, said in a note.
"Regardless of the aggregate underlying market fundamentals, recent front-month tightness has been underpinned by physical buying," he said. Nearby futures have increased their premium over later-dated contracts, with the spread between front- and second-month Brent futures at the 90th percentile. Meanwhile, Asian net refining margins have been pushed into the red, Leisen said (see chart below).
There remains "plenty of market risk that has yet to play out, with many market participants opting ... to watch and wait before deploying directional risk," he said.
The U.S. Energy Information Administration on Wednesday reported that commercial crude inventories fell for an eighth week in a row, but gasoline and distillate stockpiles each posted weekly increases. Domestic commercial crude supplies declined by 2 million barrels for the week that ended Jan. 10, the EIA said, marking an eighth weekly decline in a row.
At 412.7 million barrels, commercial crude stocks are at their lowest since 2022, EIA data show, with reductions in supplies "attributed to an increase in exports and a decrease in crude oil imports," said XS.com's Di Giacomo.
In other energy news, natural-gas prices rallied to their highest finish in more than two years, with forecasts for a continued cold snap feeding expectations for demand.
"It doesn't appear that weather forecasters are backing off their predictions of a major Arctic cold blast and the key thing for this market may not be what happens during the Martin Luther King Day holiday, where temperatures are supposed to be the coldest in over a decade," said Phil Flynn, senior market analyst at the Price Futures Group. If we see the arctic winter extended into February, "it will be a game changer for not only oil but natural gas."
The EIA reported Thursday that U.S. natural-gas supplies declined by 258 billion cubic feet for the week ended Jan. 10. Analysts surveyed by S&P Global Commodity Insights expected a fall of 251 bcf, on average.
-Myra P. Saefong -William Watts
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