Oil prices surge by over 1% following Red Sea tanker attack and re-routings
Oil prices experienced a significant boost on Monday, rising by more than 1%, after reports of attacks by the Houthis on vessels in the Red Sea raised concerns of potential disruptions in oil supply. Despite worries about Russia’s plan to cut exports in December and the availability of ample supply limiting gains, the incident in the Red Sea led to a halt in transits by major oil company BP. Other shipping firms also announced plans to avoid the route.
Brent crude futures saw an increase of $1.40, or 1.8%, reaching $77.95 a barrel by 1307 GMT, while U.S. West Texas Intermediate crude rose by 80 cents, or 1.1%, to reach $72.23. These gains marked a slight reversal for both crude benchmarks, which had experienced seven weeks of decline prior to last week. The positive shift followed a U.S. Federal Reserve meeting that raised hopes among investors of an end to interest rate hikes and the possibility of future cuts.
Tamas Varga, an oil broker at PVM, noted the role played by the rise in geopolitical risk premium in the resurgence of oil prices. He stated, The rise in geopolitical risk premium, which has come in the form of regular hostilities towards commercial vessels in the Red Sea by Iran-backed Houthi rebels, plays its indisputable part in oil’s resurrection. Varga also pointed out that despite the rally, the physical oil market remained well supplied, as evidenced by the contango structure in Brent and U.S. crude.
Russia’s announcement on Sunday further bolstered oil prices. The country stated that it would deepen its oil export cuts in December, potentially by 50,000 barrels per day or more, in an effort to support global oil prices. Russia’s decision came after a suspension of about two-thirds of its main export grade Urals crude loadings from ports due to inclement weather and scheduled maintenance. However, Varga expressed skepticism regarding the extent of Russia’s voluntary output cuts, suggesting that they were merely packaging weather-related export halts.
The attack on the Norwegian-owned vessel in the Red Sea, combined with the re-routing decisions by major shipping firms and Russia’s planned export cuts, have created a sense of unease in the oil market. While the supply disruptions and geopolitical tensions have contributed to the price surge, there remain underlying factors that may temper gains. The oil market continues to grapple with concerns about oversupply and doubts surrounding Russia’s commitment to cutting exports. Analysts will closely monitor developments in the coming days to assess the long-term impact on oil prices.
In conclusion, the recent attack on a vessel in the Red Sea, along with the subsequent re-routings by shipping firms and Russia’s planned export cuts, has led to a significant rise in oil prices by over 1%. While geopolitical tensions and supply disruptions play a role in the surge, the market remains cautious due to factors such as oversupply and doubts about Russia’s commitment to output cuts. Analysts will closely monitor the situation to gauge the lasting effects on oil prices and the broader energy market.
