Oil prices rose more than 1% on Friday as an increasing number of oil tankers veered off course from the Red Sea following overnight air and naval strikes by the US and Britain on Houthi targets in Yemen following attacks on shipping by the Iran-backed group.
While the diversions were expected to increase the cost and time needed to transport oil, supplies have not yet been affected, analysts and industry experts noted, curbing further price increases.
Brent crude futures rose $1.08, or 1.4%, to $78.51 a barrel at 1:25 PM ET (1825 GMT), after earlier rising from $3 to above $80.
U.S. West Texas Intermediate crude futures rose 85 cents, or 1.2%, to $72.85, halving gains from a session high of $75.25.
However, both benchmarks were on track to end the week lower (Brent down 0.2% and WTI 0.8% lower), as sharp price cuts by top exporter Saudi Arabia and a surprise increase in US crude inventories eased supply concerns earlier this year. week.
“While the lack of shipping through the Red Sea… is causing transportation problems for some crude oil supplies, the impact on physical oil markets has been minimal so far,” said Matt Stephani, president of investment advisory firm Cavanal Hill Investment Management. .
“If the conflict were to spread to the other side of the Arabian Peninsula… oil markets could react much more strongly,” Stephani added.
Tanker companies Stena Bulk, Hafnia and Torm all said they had decided to stop all ships sailing to the Red Sea.
However, traffic on Egypt’s Suez Canal is regular in both directions and reports that navigation has been suspended due to developments in the Red Sea are untrue, said Osama Rabie, head of the Suez Canal Authority.
The US and British strikes are in retaliation for Houthi attacks since October on commercial ships in the Red Sea, in a show of support for the Palestinian militant group Hamas in its fight against Israel.
The escalation has fueled concerns that the war between Israel and Hamas could spiral into a wider conflict in the Middle East, disrupting oil supplies. Iran seized a tanker carrying Iraqi crude oil south of the strait bound for Turkey on Thursday.
Rerouting tankers around South Africa will also increase freight prices as ships take longer routes. The Red Sea, an important route between Europe and Asia, accounts for about 15% of the world’s shipping traffic.
A Houthi spokesman said the group would continue to target shipping to Israel. Iran warned that the attack on Houthis will fuel “insecurity and instability” in the region, according to Iranian state media.
Saudi Arabia called for restraint and “avoidance of escalation” and said it was monitoring the situation with great concern.
China also supported oil prices by buying record levels of crude in 2023 as demand recovered from a pandemic-induced slump despite economic headwinds in the world’s biggest energy consumer.
The premium of the first-month Brent contract over the six-month contract rose to as much as $2.09 per barrel on Friday, the highest since early November, a sign that markets are seeing tighter supply for quick delivery.
On the supply side, Baker Hughes said the number of U.S. rigs, an indicator of future production, fell by two this week to 499.
In Libya, the spokesman for protesters who have threatened to close two oil and gas facilities in Tripoli said they have decided to extend Friday’s deadline for closing the facilities by 24 hours as negotiations with mediators are ongoing.
(Reporting by Arathy Somasekhar in Houston, Paul Carsten in London, Sudarshan Varadhan in Singapore; Editing by Marguerita Choy and David Gregorio)
(Only the headline and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)
First print: January 13, 2024 | 7:09 am IST