Brent crude began trading at $75.9/bbl in January and rose by around $6 across the month, due to supply concerns and an improved demand sentiment. The turbulent geopolitical landscape in 2023 continued in the new year, as Iran-backed Houthi militants persisted with attacks on commercial vessels in the Red Sea. In response, the US and UK launched self-defensive airstrikes against Houthi targets, raising fears of tensions escalating. Additionally, Libya’s Sharara oilfield was shutdown in the first week of the month due to protests, causing further supply concerns. Despite a disappointing economic recovery in China with contracting manufacturing activity and a weak property sector dampening demand, China announced that stimulus measures would be introduced in February, boosting optimism. Meanwhile, fuel demand reached a seven-month high in India, and US crude inventories reached their lowest level since October according to Energy Information Administration (EIA), declining by over 9 million barrels towards the end of the month, the largest drop since August. Overall, Brent crude peaked at $83.5/bbl, near its highest rate in two-months, before closing January around $82/bbl.
GBP appreciated from $1.263 to around $1.273 against USD across January, edging closer to its highest rate since August. Investors continued to predict the Bank of England’s future monetary policy decisions, following mixed economic data. For example, UK manufacturing PMI data contracted for the seventeenth consecutive month in December, meanwhile US data also fell short of expectations. In addition, a labour market slowdown was evident, and UK retail sales also declined by 3.2%, presenting the lowest reading since Covid lockdowns. Although investors anticipated that the central bank would implement interest rate cuts before mid-2024, inflation unexpectedly rose for the first time in ten months to 4% in December, and Governor Andrew Bailey stated that the UK economy remains resilient to high interest rates. The Bank of England is now expected to hold interest rates at a 15-year high of 5.25% during the first monetary policy meeting of the year on the 1st of February. Likewise, expectations of interest rate cuts by the US Federal Reserve have been scaled back, and a strong US dollar has limited GBP gains.
The Israel-Hamas conflict unsurprisingly dominated energy market headlines in January, with escalating tensions and concerns of the war widening. Deputy Hamas chief Saleh al-Arouri was killed during an Israeli drone strike at the beginning of the month, Pakistan’s air force launched retaliatory airstrikes on Iran, and Houthi militants threatened to continue targeting US ships in the Red Sea, after the US and UK launched self-defensive airstrikes. The US secretary of state, Anthony Blinken, visited the region for a week of diplomacy to attempt to prevent escalation, after warning of “profound tension” in the Middle East. US-flagged vessels were ordered to limit transit in the Red Sea, and Joe Biden acknowledged that the US airstrikes in Yemen have not been effective in halting Houthi attacks. Towards month-end, Iran-backed militants killed three US soldiers, and the US President vowed to respond. In Russia, Ukrainian drones hit an oil refinery on the Black Sea coast, following consecutive reports of strikes targeting an oil product depot in Bryansk and an attempted drone attack on the St. Petersburg Oil Terminal in recent days. Finally, OPEC+ reaffirmed the group’s commitment to “unity, full cohesion and market stability” in its latest statement, following Angola’s announcement that the nation would be departing the group.