Crude Oil WTI Jan '25 (CLF25)

Description

Crude oil is petroleum that is acquired directly from the ground. Crude oil was formed millions of years ago from the remains of tiny aquatic plants and animals that lived in ancient seas. Ancient societies such as the Persians, 10th century Sumatrans, and pre-Columbian Indians believed that crude oil had medicinal benefits. Around 4,000 BC in Mesopotamia, bitumen, a tarry crude, was used as caulking for ships, as a setting for jewels and mosaics, and as an adhesive to secure weapon handles. The walls of Babylon and the famed pyramids were held together with bitumen, and Egyptians used it for embalming. During the 19th century in America, an oil find was often met with dismay. Pioneers, who dug wells to find water or brine, were disappointed when they struck oil. It wasn't until 1854, with the invention of the kerosene lamp, that the first large-scale demand for petroleum emerged. Crude oil is a relatively abundant commodity. The world has produced approximately 650 billion barrels of oil, but another trillion barrels of proved reserves have yet to be extracted. Crude oil was the world's first trillion-dollar industry and accounts for the single largest product in world trade.

Futures and options on crude oil trade at the CME Group and at the ICE Futures Europe exchange in London. The CME trades two main types of crude oil: light sweet crude oil and Brent crude oil. The light sweet futures contract calls for the delivery of 1,000 barrels of crude oil in Cushing, Oklahoma. Light sweet crude is preferred by refiners because of its low sulfur content and relatively high yield of high-value products such as gasoline, diesel fuel, heating oil, and jet fuel. The Brent blend crude is based on a light, sweet North Sea crude oil. Brent blend crude production is approximately 500,000 barrels per day and is shipped from Sullom Voe in the Shetland Islands.

Prices - CME West-Texas Intermediate (WTI) crude oil prices (Barchart.com symbol CL) traded sideways to lower the first half 2023 and posted a 2-year low in May of $63.57 a barrel. The Federal Reserve's tightening campaign in 2023 raised concerns about a recession in the US, which weighed on crude prices. Also, China's recovery from the pandemic was weaker than expected, undercutting its energy demand. Crude oil prices ratcheted higher into Q3 and posted a 1-1/2 year high in September at $95.02 a barrel. Dollar weakness boosted crude prices when the dollar index fell to a 1-1/2 year low in July. Also, US crude supplies tightened after crude stockpiles at Cushing, the delivery point for WTI futures, fell to a 9-year low of 21 million barrels in October. In addition, crude garnered support from geopolitical tensions after a war began between Israel and Hamas in October, stoking worries that an escalation of the war could jeopardize crude shipments from the Middle East, a region that accounts for about a third of the world's oil output. Also, Houthi rebels in Yemen began attacks on commercial shipping in the Red Sea, disrupting oil supplies since shippers were forced to divert shipments around the southern tip of Africa instead of going through the Red Sea. Crude prices found support after OPEC+ in November agreed to cut crude production by -1.0 million bpd through June 2024, and Saudi Arabia maintained its unilateral crude production cut of 1.0 million bpd at a 3-year low of 9 million bpd. However, crude prices retreated into year-end as global energy demand remained tepid and as US crude oil production rose to a record high of 13.3 million bpd. Crude oil finished 2023 down by -10.7% yr/yr at $71.65 a barrel.

Supply - World crude oil production in 2022 rose by +4.7% yr/yr to 97.862 million bpd. US crude oil production in 2023 rose by +8.5% yr/yr to 12.925 million barrels per day. Alaskan oil production in 2023 fell by -2.7% yr/yr to 425,701 barrels per day, far below the peak level of 2.017 million barrels per day seen in 1988.

Demand -US demand for crude oil in 2023 fell by -0.1% yr/yr to 15.959 million barrels per day. Most of that demand was for US refinery production of petroleum products such as gasoline fuel, diesel fuel, aviation fuel, heating oil, kerosene, asphalt, and lubricants.

Trade - US imports of crude oil in 2023 rose by +3.3% yr/yr to 6.491 million barrels per day, down sharply from the 2005 record high of 10.126 million barrels. US exports of crude oil in 2023 rose by +12.6% yr/yr to 4.028 million barrels per day.

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