Oil Futures Show Signs of Recovery

Oil and refined product futures have experienced a sluggish start, but as midday approaches, the pace of gains is starting to accelerate. Refined product futures are heading towards five consecutive sessions of increases, which is an encouraging trend.

The January West Texas Intermediate (WTI) crude contract is set to expire on Tuesday, resulting in non-existent volumes for this particular contract. However, even with light volumes, both the January and February contracts are displaying similar movement. In fact, the thin volumes of the January WTI contract could be reflective of the entire petroleum complex.

There has been a shift in the route taken by ships, as they are now rerouted around Africa's Cape of Good Hope instead of going through the Red Sea. This may result in tighter supplies. However, the primary impact on oil prices is more likely to be seen in freight rates and the increase in shipping time.

Analysts believe that if this rerouting persists for several months, it could further increase upward pressure on prices.

During midday trading, both WTI and Brent crude oil were either at or near their daily highs. Brent crude oil exhibited slightly better increases compared to WTI. As a result, the spread between the two benchmarks has continued to widen for five consecutive days and is now more than $5 per barrel.

The price of the January WTI contract recently reached $73.98 per barrel, registering an increase of $1.50. The February contract initially traded at $74.42 per barrel before slightly retracing to $74.19, recording a gain of $1.37.

Overall, despite a slow start, oil futures are showing promising signs of recovery as refined product futures continue to rise. The shift in shipping routes and the potential implications for supply tightness highlight the current dynamics in the industry.

Rising Brent prices and Refined product futures

February Brent is trading higher by $1.49 at $79.44/bbl as it approaches Monday's highs.

Refined product futures are also on the rise, with ULSD outpacing RBOB. Both January and February show an increase of around 5cts.

ULSD Futures

The lightly traded January contract is up 5.02cts at $2.723/gal, while the February contract has risen by 4.66cts to $2.6974/gal.

RBOB Futures

The RBOB contract consistently shows gains between 3.0-3.5cts for much of the 2024 contracts. Currently, the January contract is up 3.39cts at $2.1929/gal, and February is up 3.47cts at $2.2022/gal. Both contracts, along with many of the 2024 gasoline contracts, are within 25 points of their previous highs.

Cash Markets and Gulf Coast Gasoline

Cash markets have remained relatively stable on Tuesday. However, Gulf Coast gasoline is slowly reducing its discount and the prompt cycle is currently valued at 17.5cts. The only gasoline market in the red at midday is San Francisco, with CARBOB prices down about half a cent.