On January 3rd, 2024, the energy sector showcased exceptional performance, marking a strong start to the new yearThe international crude oil prices experienced a significant surge, climbing by nearly 2%. At one point, Brent crude soared to $76 per barrel, setting a new peak not seen in two monthsSimilarly, European natural gas prices rose more than 4%, hitting €51 per megawatt hour, which is the highest level since October 2023.

The reasons behind this sharp price increase are manifoldA temporary shutdown of a liquefied natural gas (LNG) export terminal in Norway has had a considerable impact, driving up European natural gas pricesFurthermore, the weather forecast indicated that the United States was poised to be affected by an Arctic storm in early January, which is expected to bring colder weather that could persist for some timeThis, in turn, is projected to elevate the demand for oil and gas and thus push prices higher.

The global surge in crude oil prices was evident through reports released in the early hours of January 3rd

By that time, WTI crude oil for February 2025 was up by $1.41, trading at $73.13 per barrel, reflecting a rise of 1.97%. Meanwhile, March 2025 Brent crude rose by $1.29 to $75.93 per barrel, marking an increase of 1.73%.

A significant contributor to this rise in international oil prices can be attributed to decreasing U.Scrude oil inventoriesOn January 3rd, the U.SEnergy Information Administration announced that for the week ending December 27, 2024, the commercial crude oil inventories – excluding strategic reserves – dropped to their lowest level since September 20, 2024.

Additionally, a decline in Mexico’s oil production has fortified the oil priceAccording to Mexico's state-owned oil firm, Pemex, the daily oil production in November averaged 656,000 barrels, a fall from 702,000 barrels in October, marking a 2.7% decrease and the sixth consecutive month of declines

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Year-on-year, November's output decreased by 9.9% compared to 837,000 barrels per day in the same month of the previous year.

Analysts from Huatai Futures pointed out that the primary driver behind the rise in international oil prices remains the impending cold wave sweeping across North AmericaThis chill is expected to not only ramp up heating consumption in the U.Sbut also freeze wellheads in key production regions such as Bakken and the Permian Basin, potentially leading to a short-term reduction in output.

Industry experts warn that if the cold wave disrupts the Texas electrical grid, it could result in large-scale refinery shutdownsCurrently, U.Scrude oil fundamentals signal a low inventory scenario, and the chilly weather may serve as a short-term supportive factor for elevated oil pricesHowever, on a global scale, there haven’t been significant shortages in the physical crude oil market.

The spike in prices wasn't limited to crude oil; natural gas prices in both America and Europe also saw considerable upticks

The U.Snatural gas futures market reflected this trend as the price surged by 16% to $3.936 per million British thermal units (MMBtu), the highest in nearly two yearsSpot gas prices also saw a significant increase of 21%, reaching $3.395 per MMBtu, second only to the staggering $12.97 per MMBtu set in January.

Forecasts from the National Weather Service on December 31, 2023, indicated a marked increase in the likelihood of unusually cold weather in the Eastern and Midwestern United States over the following two weeksThese conditions are anticipated to drive energy demand upward, bolstering bullish price sentimentsAnalyst Wang Yafei from Jinlian Chuang reiterated this, projecting enhanced heating gas demand due to the cold snap in early January and thereby predicting further price increases.

Wang elaborated that the intense cold weather could pose risks of freezing, which might hinder natural gas production in the U.S

As the supply-demand dynamics tighten, prices are likely to be supported upward, with futures expected to fluctuate between $2.80 and $3.80 per MMBtu.

It’s also noteworthy that European natural gas prices have climbed significantlyOn January 2nd, the price for Dutch near-term natural gas soared by 4%, reaching €50.85 per megawatt hour, marking the highest level since October 2023.

This escalation in European natural gas prices can be primarily linked to instability in energy supply chainsGazprom, the Russian state gas company, announced on January 1st that they would terminate gas transit through Ukraine to Europe due to the expiration of a transit agreementObservers suggest that the closure of transit valves by Ukraine could potentially hike gas prices in EU countries by around 30%.

The oil service sector has demonstrated impressive performance in response to rising international oil prices

On January 3rd, not only did the stocks of the "three major oil companies" rise, but shares of energy service companies surged after more than half an hour of trading, with over 30,000 buy orders placing a cap on the stock priceCompanies such as China National Offshore Oil Corporation (CNOOC) Services, Offshore Oil Engineering, and Baikang Oil Services experienced notable price movements.

The oil service sector has thrived in capital markets throughout 2024, particularly shining for stocks with excellent performance growthBy December 31, 2024, firms like CNOOC Development, China Oil Engineering, and Sinopec Oilfield Services recorded impressive gains of 55.84%, 19.73%, and 11.48%, respectivelyAdditionally, shares of Sinopec Engineering, which benefited from strong performance and dividends and regaining trading options in the Hong Kong Stock Connect, skyrocketed by 87.47% by year-end.