MARKET SNAPSHOT

By Dr. Nancy Yamaguchi

January 3, 2020: Oil prices surged on news of U.S. airstrikes in Iraq that reportedly killed five people, including the Iranian general who commanded the Revolutionary Guards Corps. The end of December saw prices hit peaks of over $62/b, the highest prices since the spike caused by attacks on Saudi Arabian oil infrastructure in mid-September. Prices were easing this week to the neighborhood of $61/b, and prices appeared likely to finish the week in the red. This would have given back some of the gains seen over the prior four weeks. However, geopolitical risks now are sending investors to safe havens, and oil prices are rising. WTI crude futures prices have spiked to highs of over $64/b this morning, and prices currently are in the $63.00-$63.50/b range.

WTI futures crude prices opened on Friday, December 27, at $61.73/b, and prices eased to an open of $61.18/b today, down by $0.55/b. WTI futures prices eased slowly but steadily every day this week, but they managed to hold to the $61/b level. Gasoline and diesel prices followed crude. Yesterday afternoon brought news of deadly U.S. airstrikes at Baghdad International Airport. Crude and product prices spiked, and most of the gains are being held in this morning’s trading. Our weekly price review covers hourly forward prices from Friday, December 27th, through Friday, January 3rd. Three summary charts are followed by the Price Movers This Week briefing for a more thorough review.

GASOLINE PRICES

Gasoline opened on the NYMEX at $1.7536/gallon on Friday, December 27, and prices opened at $1.7069/gallon on Friday, January 3. This was a drop of 4.67 cents (2.7%.) U.S. average retail prices rose by 3.9 cents/gallon during the week ended December 30th. Until the U.S. airstrikes in Iraq, gasoline prices were headed for a finish in the red, after three consecutive weeks of gains. The attacks caused a price spike of over 5 cents per gallon since yesterday. Trades are occurring mainly in the range of $1.75-$1.78/gallon. The latest price is $1.7562/gallon.

DIESEL PRICES

Diesel opened on the NYMEX at $2.0537/gallon on Friday, December 27, and opened on Friday, January 3, at $2.026/gallon, down by 2.77 cents (1.3%.) U.S. average retail prices for diesel rose by 2.8 cents/gallon during the week ended December 30th. Diesel futures prices declined Tuesday through Thursday, and the week appeared to be heading for a finish in the red. The U.S. airstrikes in Iraq caused a price spike of approximately 5 cents/gallon since yesterday. Contracts currently are trading in the $2.06-$2.10/gallon range. The latest price is $2.0768/gallon.

WEST TEXAS INTERMEDIATE PRICES

WTI (West Texas Intermediate) crude forward prices opened on the NYMEX on Friday, December 27, at $61.73/b. Prices eased slowly to an open of $61.18/b today, down by $0.55/b (0.9%.) During the week, prices were supported modestly by news that U.S. crude oil inventories shrank. But the week appeared to be heading for a finish in the red until the news announcements of deadly U.S. airstrikes in Iraq, targeting Iranian military leadership. WTI futures prices spiked above $64/b overnight, and current prices are in the range of $63.00-$63.50/b. The latest price is $63.42/b.

PRICE MOVERS THIS WEEK : BRIEFING

Oil prices surged on news of U.S. airstrikes in Iraq that reportedly killed five people, including the Iranian general who commanded the Revolutionary Guards Corps. Until the airstrikes, crude oil prices had eased daily this week, and the week appeared to be heading for a finish in the red. This would have stopped a four-week upward climb in WTI crude prices. Then, U.S. President Donald Trump ordered the airstrike at Baghdad International Airport in Iraq. The drone strikes killed at least five people, including Iranian General Qassem Soleimani. The strike also killed pro-Iranian militia leader Abu Mahdi al-Muhandis, a leader in Iraq’s Popular Mobilization Forces militia. Iranian supreme leader Ayatollah Ali Khamenei denounced the action and promised revenge. U.S. Secretary of State Mike Pompeo stated that Iran was actively plotting against the U.S., and that the action was taken to save American lives. Neighboring countries fear escalation of armed conflict.

Markets are shifting into safe-haven investments, including gold. Stock markets are down. Energy prices are rising. During the month between December 3rd 2019 and January 3rd 2020, WTI crude futures prices rose by $5.22/b. Until today, prices were easing, but the current surge could keep prices above $63/b today and build upon the prior gains.

Before the geopolitical risks hit the market, investors were hoping that today would finish off a “Santa Claus Rally.” The Santa Claus Rally period is the last five trading days of one year plus the first two trading days of the new year. Since 1950, the S&P 500 index has risen 1.3% on average during this period. Today’s market results will be key. So far, between Christmas Eve and January 2nd, the S&P 500 rose by 1.1%, and the Dow Jones Industrial Average rose by 1.2%. But as investors seek safe havens, stock markets are pulling back. Early reports this morning show that the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite are down by approximately 0.8%. Nonetheless, even if the Santa Claus Rally does not fully materialize, stock markets performed admirably during 2019.

Midweek, generally bullish inventory reports did little to buoy oil prices. The American Petroleum Institute (API) reported a 7.8-million barrel (mmbbl) drawdown from U.S. crude oil inventories. The API also reported a 0.776-mmbbl draw from gasoline inventories and an addition of 2.8 mmbbls to diesel inventories. Industry experts had anticipated a crude stock drawdown counterbalanced by additions to gasoline and diesel stocks. The API’s net inventory draw was a significant 5.776 mmbbls.

The U.S. Energy Information Administration (EIA) released less bullish official statistics, showing a 5.474-mmbbl crude stock drawdown, a 1.963-mmbbl addition to gasoline stocks, and a 0.152-mmbbl drawdown from diesel inventories. The net result was an inventory draw of 3.663 mmbbls.

The EIA also reported that U.S. crude production regained its historic high level of 12.9 mmbpd during the week ended December 20th. Production hit this record during the second half of November, and it has bounced between 12.8 and 12.9 mmbpd since then. Approximately 1.2 mmbpd has been added to U.S. production this year.