Oil Prices Decline on Red Sea Conflict Escalation and Dollar Strength

17 Jan 2024 , 08:19 AM

Wednesday saw a decline in oil prices as demand for petroleum denominated in US dollars was restricted by the growing danger of supply interruptions brought on by the escalating Red Sea conflict.

The price of a barrel of the benchmark Brent crude decreased 36 cents, or 0.5%, to $77.93. West Texas Intermediate (WTI) oil futures for the United States dropped 43 cents, or 0.59%, to $71.97 per barrel.

Tuesday saw a modest uptick in Brent crude while WTI declined as investors perceived a weakening of U.S. fundamentals. However, the continuous air and naval skirmishes in the Red Sea raised concerns that tankers would have to reroute to avoid the region, increasing delivery times and costs.

The US dollar was trading close to its one-month peak on Wednesday following remarks made by Federal Reserve members against excessive expectations for rate cuts. When purchasers pay in other currencies, there is less demand for oil priced in dollars due to the strengthening dollar.

Tuesday saw the U.S. launch additional attacks against the Houthi terrorists in Yemen who are affiliated with Iran following a Houthi missile that collided with a Greek vessel in the Red Sea.

Following the start of the US and UK strikes, British oil company Shell stopped shipping through the Red Sea; however, US producer Chevron is continuing to use its Red Sea routes.

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