As big shipping companies return to the Red Sea, oil prices decline

27 Dec 2023 , 09:21 AM

Early on Wednesday in Asian trading, oil prices declined, giving up significant gains from the previous day as big shipping companies started to return to the Red Sea in spite of ongoing attacks and rising Middle East tensions.

Brent crude futures had dropped 18 cents, or 0.22%, to $80.89 per barrel. At $75.35 a barrel, U.S. WTI crude futures were down 22 cents, or 0.29%.

Tuesday witnessed price increases of over 2% to the highest level of the month, maintaining the rising trend that began last week with price increases of over 3%, partially due to expectations of interest rate reduction in the US that may spur economic expansion and drive demand.

Nonetheless, the likelihood of an extended Israeli military operation in Gaza and the conflict’s spread to ship strikes in the Red Sea continue to be significant influences on market mood.

The Houthi movement in Yemen, which is supported by Iran, took credit for a missile attack on a container ship in the Red Sea on Tuesday. Israel’s Chief of Staff, Herzi Halevi, told reporters that the Gaza war would continue ‘for many months’ on Tuesday.

Major shipping companies like Maersk and CMA CGM of France were continuing passage across the Red Sea despite the attack after an international task force was sent to the area.

Hapag-Lloyd of Germany is anticipated to decide on Wednesday whether to resume shipments.

The expectation that the U.S. Federal Reserve would start cutting interest rates in 2024 is still helping the markets, as data released on Friday indicated that inflation is still at or below the central bank’s 2% target by a number of important metrics, including the personal consumption expenditures (PCE) price index.

Reduced borrowing costs due to lower interest rates have the potential to boost economic expansion and increase demand for oil.

A preliminary Reuters poll on Tuesday indicated that while distillate and petrol stockpiles probably increased, U.S. crude levels were predicted to have decreased by 2.6 million barrels last week.

Due to the Christmas holiday, inventory updates from the U.S. Department of Energy’s statistics arm, the Energy Information Administration, and the industry association American Petroleum Institute are expected on Wednesday and Thursday, respectively. This is one day later than usual for both reports.

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