Amidst continued global turmoil, crude oil soared to its highest levels this year, marking a bullish surge of approximately 3% on Thursday. The impressive ascent was underpinned by the unexpected acceleration of the U.S. economy and persistent shipping disruptions in the Red Sea.
U.S. Economy Surpasses Expectations
Revealing a robust landscape, the U.S. government released its advance estimate, showcasing a remarkable 3.3% annualized growth in Q4. This surpassed the consensus forecast of a 2% growth, thereby bolstering the outlook for energy demand. The unexpected surge in economic growth provided a strong impetus for the bullish momentum in the crude oil market.
Global Turmoil in Oil Supply
Amidst the economic observations, supply concerns heightened following reports of a substantial fire at a Rosneft refinery in Tuapse, Russia, with a production capacity of 240,000 barrels per day. Furthermore, new missile attacks by Houthi rebels on ships in the Red Sea added to the growing concerns. The shipping disruptions forced two vessels carrying U.S. military supplies to retreat from the Bab-al-Mandab strait off the Yemen coast, a key chokepoint for global oil supply.
Market Sentiments and Price Surges
Joshua Mahoney, chief market analyst at Scope Markets, encapsulated the growing sentiment, stating, “We are finally seeing energy markets wake up to the distinct possibility that these supply chain disruptions will rumble on for months yet,” as mentioned in a Reuters report. Front-month Nymex crude for March delivery closed at $77.36 per barrel after a remarkable 3% surge, marking its highest settlement since December 29. Similarly, front-month March Brent crude also witnessed a notable 3% increase to reach $82.43 per barrel, its best level since November 30.
Implications on S&P Sector
Notably, Energy (XLE) emerged as the top-gaining S&P sector, soaring by 2.2%, with strong leadership from industry heavyweights Exxon Mobil (XOM) and Chevron (CVX), both gaining 2.5% in Thursday’s trading. The oil surge built on the gains from the previous session after the Energy Information Administration reported a substantial and unexpected 9.2 million-barrel drop in U.S. crude inventories, alongside a five-month low in domestic crude production at 12.3 million barrels per day. Additionally, prices were buoyed by hopes for a rebound in China’s economy following the central bank’s announcement of a deep cut in bank reserves on Wednesday.
ETFs and Continued Momentum
The exchange-traded funds (ETFs) tracking the energy sector, including (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), and (USOI), also experienced considerable movement. This notable surge in crude oil elucidates the enduring momentum and robust demand for energy resources.
As the global economy continues to grapple with the ramifications of supply disruptions and economic dynamics, the energy markets are poised to navigate an era of volatility and resilience.
