On Friday, January 23rd, international crude oil futures saw a significant increase, with both core indicators of crude oil rising by over 2.5% on a weekly basis. The March contract for WTI crude oil in the United States rose by $1.71, or 2.9%, with a settlement price of $61.07 per barrel, hitting a high of over a week; Brent April crude oil futures contract (most actively traded): up $1.73, settled at $65.07 per barrel. The escalation of geopolitical tensions and disruptions in crude oil supply in many parts of the world have become the core driving forces behind the rise in oil prices; Despite a short-term pullback in oil prices earlier this week due to fluctuations in policy expectations, multiple favorable factors combined on Friday led to a strong rebound in oil prices and the recovery of previous losses. Specifically, let's take a look:
Core driving factors: escalation of geopolitical conflicts and concerns about supply disruptions
US increases sanctions on Iran, raising supply risks in the Middle East
On January 23rd, the US Treasury Department officially announced a new round of sanctions against Iran, focusing on the oil and gas related industry chain. Eight new entities and nine oil tankers were added to the sanctions list, with some sanctioned entities located outside of Iran, further expanding the scope of sanctions. This measure is a further escalation of restrictions on Iran by US President Trump after imposing more sanctions on ships transporting Iranian oil and dispatching fleets to the Middle East. The market's concerns about the interruption of crude oil supply in the Middle East have intensified. According to OPEC data, Iran's current crude oil production is about 3.2 million barrels per day, making it the fourth largest oil producing country in the organization after Saudi Arabia, Iraq, and the United Arab Emirates. It is also an important source of crude oil supply for China (the world's second largest oil consumer). If Iran's crude oil exports and production activities continue to be restricted due to sanctions, it will have a certain impact on the balance of world crude oil supply and demand.
Kazakhstan oil fields shut down, continuous supply gap difficult to fill in the short term
The continuous fermentation of crude oil supply difficulties in Kazakhstan, a globally important oil producing country, further exacerbates the expectation of tight market supply. The core oil field of the country, Tengiz oil field (one of the world's largest oil fields), announced production stoppage due to a fire on Monday, January 22. As of January 23, the operator Tengizchevroil (led by Chevron) has not yet resumed production.
To make matters worse, Kazakhstan's oil industry is already facing the challenge of being blocked by the main export channel of the Black Sea (which was previously damaged by Ukrainian drones), and the shutdown of Tengiz oil field has further cut off its core supply channel. Morgan Stanley released an analysis on Friday, January 23, stating that Tengiz oil field accounts for nearly half of Kazakhstan's national crude oil production, and it is expected that the field will continue to shut down for the rest of January. As a result, Kazakhstan's January crude oil production is expected to be only 1-1.1 million barrels per day, a significant decrease of 40% -45% from the conventional level (1.8 million barrels per day), and the short-term supply gap is difficult to make up for.
Other influencing factors: Changes in US oil and gas drilling rigs and production expectations
On the one hand, on Friday, the regular data report released by American energy service company Baker Hughes brought positive news, providing some support for oil prices. On the one hand, the number of active oil and gas drilling rigs has shown a phased rebound: the report shows that as of the week of the 23rd, the total number of oil and gas drilling rigs in the United States increased by 1 to 544, the first increase in three weeks. As a leading indicator of future crude oil production, the rebound in the number of drilling rigs may indicate the potential for long-term production recovery.
On the other hand, short-term cold weather will suppress US crude oil production. Energy Aspects, an energy consulting firm, believes that the recent cold weather in the United States has forced major oil basin operators to shut down some production facilities, which is expected to lead to a short-term decline of about 300,000 barrels per day in US crude oil production. This factor provides short-term support for oil prices and partially offsets the long-term production growth expectations brought about by the recovery of drilling rigs.
Business Society's crude oil analyst believes that in the short term, on the positive side, geopolitical instability factors will continue to affect crude oil, and risk premiums may continue to push up oil prices. The bearish side, rising inventory pressure, and expectations of easing tensions between Russia and Ukraine have become the main factors dragging down oil prices. In the context of the interweaving of long and short positions, it is expected that oil prices will maintain range volatility, and the amplitude may continue to expand.
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