Oil prices pull back from December highs, end lower as traders monitor Red Sea developments

Oil futures on Wednesday pulled back from December highs, ending lower as investors continued to monitor developments in the Red Sea amid worries over potential disruptions to crude shipments.

Price action

West Texas Intermediate crude for February delivery
CL00,
+0.96%

CLG24,
+0.96%

CL.1,
+0.96%
fell $1.46, or 1.9%, to close at $74.11 a barrel on the New York Mercantile Exchange.
February Brent crude
BRNG24,
the global benchmark, declined $1.42, or 1.8%, to settle at $79.65 a barrel on ICE Futures Europe.
On Nymex, January gasoline
RBF24
fell 0.2% to end at $2.155 a gallon, while January heating oil
HOF24
declined 1.7% to $2.624 a gallon.
January natural gas
NGF24
rose 2.7% to finish at $2.619 per million British thermal units.

Market drivers

Oil rose to December highs on Tuesday after Yemen’s Iran-backed Houthi rebel militia claimed responsibility for both a missile attack against the containership MSC United VIII and an attempt to attack Israel with drones.

The attacks rattled investors and came after the U.S. last week announced the formation of a naval coalition to address attacks in the region. Crude prices initially saw pressure on Tuesday after shipping company Maersk
MAERSK.A,
+4.36%

MAERSK.B,
+4.20%
over the weekend said it would resume shipments via the Red Sea.

The concerns saw WTI face clear resistance in the $74-$75 per barrel range on Tuesday, though the “bullish market reaction” looks relatively weak given the potential for disruption, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note.

Meanwhile, demand concerns also loom over the market, particularly in China where strong demand over the first nine months of the year has started to moderate, said Rebecca Babin, senior energy trader at CIBC Private Wealth U.S., in a note.

“The market expects that approximately 800,000 of the 1.2-1.6 million barrels-per-day growth next year will come from China, with jet fuel leading the charge,” she wrote. “The lack of confidence in China’s economy in 2024 remains the market’s biggest concern followed by fear that U.S. production will continue to beat estimates as it did in 2023.”

The cautious sentiment, however, creates a low bar for positive surprises in 2024, Babin said, in contrast to a 2023 where expectations of massive inventory draws were too hard to live up to.

On the charts, a bearish “death cross” pattern appeared Tuesday, with the 50-day moving average for WTI crossing below the 200-DMA.

The 50-DMA is a widely followed short-term trend tracker, while many view the 200-DMA as a dividing line between longer-term uptrends and downtrends. So a death cross is seen by many Wall Street chart-watchers as marking the spot where a shorter-term pullback transforms into to a longer-term downtrend.

See: Crude oil sees first real ‘death cross’ since the pandemic plunge of early 2020

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