Fears over the Middle East and future borrowing rates drop drive up oil prices

14 Dec 2023 , 09:34 AM

Early on Thursday in Asian trading, oil prices increased, building on gains from the previous day in response to the US Federal Reserve’s announcement that it will begin reducing borrowing costs in 2024 and a larger-than-expected weekly drawdown from US crude storage.

Reduced interest rates save consumers’ borrowing expenses, which can increase demand for oil and spur economic growth. The announcement also caused the currency to decline, which lowers the price of oil for buyers from overseas.

Brent futures had increased by 46 cents, or 0.6%, to settle at $74.72 per barrel. The closing price of U.S. West Texas Intermediate (WTI) crude was $69.95, up 48 cents, or 0.7%.

Following a Red Sea tanker raid, concerns regarding the security of Middle Eastern oil supply caused the market to rise during the previous session.

Following a warning from Yemeni Houthi forces to ships not to sail to Israel, gunmen in a speedboat opened fire on a tanker in the Red Sea off the coast of Yemen and launched missiles at it. This is the most recent event to jeopardise the maritime route.

The U.S. oil Information Administration (EIA) said that while imports decreased, oil companies removed a larger than anticipated 4.3 million barrels of petroleum from stocks during the week ending December 8. 

The Organisation of the Petroleum Exporting Countries (OPEC) attributed the recent decline in crude prices to ‘exaggerated concerns’ regarding the growth in oil demand in its monthly report.

Since Nov. 30, when OPEC+ announced a fresh round of output cutbacks, Brent futures have fallen by around 10%. OPEC and its partners, such as Russia, comprise OPEC+.

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