Fears about the Middle East's rising tensions are driving up oil prices

28 Dec 2023 , 09:45 AM

Early on Thursday in Asian trading, oil prices increased as concerns about transport interruptions eased and concerns about growing tensions in the Middle East persisted. This was due to the announcement by certain international shipping companies that they would be resuming their Red Sea route.

Brent crude futures had increased by 20 cents, or 0.3%, to $79.85 per barrel. WTI oil futures for the United States were up 24 cents, or 0.3%, to $74.35 per barrel.

On Wednesday, prices fell by over 2% as big shipping companies started going back to the Red Sea.

After declaring a temporary stop to those routes this month due to attacks by Yemen’s Houthi militia, which is supported by Iran, Danish shipping major Maersk said it has planned several dozen container ships to go via the Red Sea and Suez Canal in the upcoming weeks.

However, the likelihood of an extended Israeli military campaign in Gaza and the conflict’s spread to ship strikes in the Red Sea continue to be significant factors influencing market sentiment.

On Wednesday, Israeli forces hammered central Gaza via air, sea, and land, after the announcement by Israel’s chief of staff, Herzi Halevi, to reporters that the war would last ‘for many months’.

Support was also increased by growing anticipation that major central banks, like the Federal Reserve, would begin reducing interest rates early in the upcoming year. Reduced borrowing costs due to lower interest rates can boost the demand for oil as well as economic growth.

In response to the increase in U.S. crude stockpiles last week, the market exhibited minimal movement.

According to market sources quoting American Petroleum Institute data on Wednesday, U.S. oil stocks increased by 1.84 million barrels in the week ending December 22, defying a prediction of approximately 2.7 million barrels decline in a Reuters poll of seven analysts.

Due to the Christmas holiday on Monday, U.S. government data on stocks is due on Thursday instead of Monday.

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