Oil futures: Crude lower as Angola rocks OPEC solidarity with quit notice
Quantum Commodity Intelligence – Crude oil futures Thursday were lower after Angola dramatically announced it was leaving OPEC, following disagreements over future production caps.
Front-month Feb24 ICE Brent futures were trading at $78.99/b (1910 GMT), compared to the day's high of $80.13 Wednesday's settle of $79.70/b.
At the same time Feb24 NYMEX WTI was trading $73.52/b versus Wednesday's settle of $74.22/b.
While the announcement does little to move supply/demand balances in the short term, given that Angola is producing below quota, the move was seen as a major blow to OPEC unity. Brent prices initially tumbled over $2/b on the news before regaining around half of the losses.
Prior to the OPEC news, oil benchmarks had been at around three-week highs, consolidating the week's gains that had been nearing 5% as shipping disruptions in the Red Sea continued to raise concerns over supplies.
"While oil supply is not directly affected by the attacks in the Red Sea, the risk premium is keeping the price elevated," commented City Index analyst Fiona Cincotta, with oil and LNG carriers diverting away from the area, leading to significant increases in journey times.
Dozens of container ships have also been either diverted around the Cape of Good Hope rather than transiting the Red Sea or delayed and waiting for further orders before transiting.
Insurance costs have also soared for vessels still transiting the Red Sea, adding to costs.
"For the oil trade, it is a wake-up call. Last month, the market declared that war premium was unnecessary, but we are seeing that war premium forced back into the price. War premium is a real cost. Because we are seeing shipments being delayed, taking longer routes is a real cost," said Phil Flynn of The Price Futures Group.
Production
The impact of record US production has been put to one side this week, with markets showing little reaction to the latest EIA weekly report.
Domestic output in the US rebounded to record highs of 13.3 million bpd last week as surging shale production continues to show little sign of slowing down despite economic headwinds in the US, higher borrowing costs for drillers, and volatile energy prices.
Natural gas liquid production pulled back slightly over the week but remained just off all-time highs as it added another 6.7 million bpd to the US energy mix.
Data from Cushing showed inventories up 1.69 million barrels through the week at 32.5 million barrels, the highest they have been since the end of August as inventories continue to rebound from operationally critical lows.
Earlier this week, the EIA said production from the Permian Basin is set to add a modest 5,000 bpd but post a record 5.986 million bpd, up from 5.981 million bpd in December and a record straight eighth monthly increase.
Overall tight oil production is slated at 9.692 million bpd, largely unchanged from December, with shale making up the lion's share of US oil output totalling around 13.3 million bpd next month.
