Oil increases by about 2% as ships reroute following attacks in the Red Sea.
Oil increases by about 2% as ships reroute following attacks in the Red Sea.
December 18, Houston (Reuters) - After the Iran-aligned Yemeni terrorist group the Houthi attacked ships in the Red Sea on Monday, investors are concerned about potential interruptions to maritime trade and supply costs, causing oil prices to rise by about 2%.
Following an attack on a Norwegian-owned ship in the Red Sea on Monday, oil giant BP said that it has temporarily suspended all waterborne operations. Over the weekend, several shipping companies said that they would not be using the route.
While U.S. West Texas Intermediate crude increased $1.04, or 1.5%, to $72.47, Brent crude futures ended the day up by $1.40, or 1.8%, at $77.95 per barrel. It had increased by almost $3 for both benchmarks earlier in the session.
"As more and more oil tankers are ceasing all sails through the Red Sea strait, there are now increased supply costs to take into account," stated Fawad Razaqzada, a StoneX market analyst.
The quickest maritime route between Europe and Asia is the Suez Canal, which is used by 15% of all ships worldwide. On Monday, the Red Sea region that London's marine insurance market considered to be high risk was expanded, increasing the premiums that ships must pay.
Defense ministers from the area and beyond will have virtual discussions on the matter on Tuesday, according to U.S. Defense Secretary Lloyd Austin, who also stated that Washington was assembling a coalition to counter the Houthi threat.
After seven weeks of declines, the futures saw a little increase last week as expectations that the US Federal Reserve's interest rate hikes are coming to an end and a reduction is imminent were expressed during a meeting.
But Monday's price increases were constrained by a plentiful supply of oil. The price of Brent and U.S. crude for immediate delivery was lower than that of future deliveries, indicating a physically stocked market.
The differential between the prices of U.S. crude for delivery in January and February reached as much as 40 cents, the most since November 2020.
In an additional show of cooperation, Russia announced on Sunday that it will go ahead and restrict oil exports by up to 50,000 barrels per day in December—a month ahead of schedule—as the world's largest exporters attempt to keep oil prices stable.
Due to a storm and planned maintenance on Friday, Russia delayed almost two-thirds of the loadings of its major export grade Urals oil from ports; as a result, it announced deeper export cuts.
In the meantime, October saw Saudi Arabia export more crude oil than it had in the previous four months, according to data from the Joint Organizations Data Initiative.
Analysts speculated that there might be some short covering in the markets. The U.S. Commodity Futures Trading Commission stated on Friday that money managers reduced their net long positions in U.S. crude futures and options in the week leading up to December 12, marking the 11th consecutive week of decreases.
The U.S. Energy Information Administration (EIA) reported that while production from the top Permian basin is expected to grow to a record for an eighth straight month, U.S. oil output from the top shale-producing regions is expected to fall in January for the third consecutive month.
"Considering today's rally and the positive action from last week, there's a chance that oil might have hit rock bottom," StoneX's Razaqzada said
Editing by Jason Neely, Paul Simao, Deepa Babington, Chizu Nomiyama, and Cynthia Osterman; reporting by Arathy Somasekhar, Georgina McCartney in Houston, Alex Lawler in London, and additional reporting by Florence Tan and Emily Chow
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