The decision by oil companies and freight vessels to steer clear of the Red Sea has had a significant impact on the crude oil and refined products futures market. In just three trading sessions, certain markets have experienced dramatic increases, fueling speculation that a long-term bottom may have been reached.
Last Wednesday, RBOB futures hit a two-year low of $1.9672/gal. However, Monday saw a significant rebound, with prices reaching as high as $2.2163/gal—a bounce of nearly 25 cents. While there was a slight cooldown in gasoline buying later in the morning, the daily increase of 4.27 cents still pushed January RBOB to $2.1797/gal. Cash markets saw a similar recovery, with some markets increasing by more than 20 cents per gallon in just three days. These price increases may help prevent a further drop in street prices.
Crude oil has been directly impacted by the Red Sea avoidance strategy, as it continues to be targeted by Houthi raids on shipping in the region. Despite Goldman Sachs lowering its expectations for the benchmark by $10/bbl, February Brent prices rose by $1.84 to reach $78.39/bbl this morning. Goldman’s new predictions still place Brent at a future price of $70-$90/bbl by 2024, with a target of $85/bbl for June—more than $5/bbl above the estimated futures curve.
Similarly, West Texas Intermediate saw a rise of $1.74 this morning to reach $73.17/bbl, despite Goldman Sachs acknowledging the potential for U.S. production to increase by around 900,000 barrels per day next year.
Diesel also experienced a rally on Monday. Although like crude oil and gasoline, the lowest prices were recorded before 10 a.m. ET. January ULSD increased by 7.16 cents to reach $2.6924/gal. Expectations are running high for this Wednesday’s Energy Information Administration report, which could reveal a considerable build in inventories. Cash markets have also seen notable gains, with Los Angeles CARB diesel prices soaring to 6 cents per gallon above CME futures.
_(Original reporting by Tom Kloza)