Oil prices rise as traders monitor developments in the Red Sea

20 Dec 2023 , 09:50 AM

Following a 1% increase in the previous session due to concerns over disruptions to global trade and geopolitical tensions in the Middle East as a result of Houthi attacks on ships in the Red Sea, oil prices increased little on Monday.

Brent crude futures had increased by 6 cents, or 0.1%, to $79.29 per barrel, while U.S. West Texas Intermediate crude had increased by 17 cents, or 0.2%, to $74.11 per barrel.

As major shipping companies were forced to reroute due to strikes by Iran-backed Yemeni extremists, Washington on Tuesday established a task group to protect Red Sea commerce, raising concerns about long-term disruptions to global trade.

Defying a U.S.-led military campaign, the Houthis pledged to continue targeting Red Sea ships in favour of the Hamas movement, which rules the Palestinian enclave of Gaza.

A little over 12% of all shipping traffic in the world travels via the Suez Canal and the Red Sea. Since the majority of Middle Eastern crude is exported via the Strait of Hormuz, observers noted that the impact on the oil supply has been little thus far.

According to the Energy Department’s report on Tuesday, the United States purchased 2.1 million barrels of petroleum for delivery in February, increasing the total amount purchased to around 11 million barrels. This replenishment of the Strategic Petroleum Reserve (SPR) follows the largest-ever sale of crude oil in history last year.

According to sources quoting data from the American Petroleum Institute, U.S. oil and fuel inventories increased last week as well, defying analysts’ predictions of a drop in crude stocks based on a Reuters poll.

Official U.S. stock statistics will be released by the U.S. Energy Information Administration (EIA) on Wednesday at 10:30 a.m. ET (1530 GMT).

Looking ahead, the U.S. is producing more oil than any other nation in history, driving strong non-OPEC+ supply growth that will more than match rising global demand in 2024, according to S&P Global Commodity Insights.

According to the company, the total amount of liquids produced in the United States in the fourth quarter was 21.4 million barrels per day (bpd), of which 13.3 million were crude and condensate.

Vice president at S&P Global Jim Burkhard wrote in a note that ‘not only is the United States producing more oil than any country in history, but the amount of oil (crude oil, refined products, and natural gas liquids) that it is exporting is near the total production of Saudi Arabia or Russia.’

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