Oil prices rise as traders monitor developments in the Red Sea

20 Dec 2023 , 09:47 AM

Oil prices saw marginal increases on Monday following a 1% uptick in the previous session due to concerns about disruptions in global trade and Middle East geopolitical tensions stemming from Houthi attacks on ships in the Red Sea.

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

As Iran-backed Yemeni extremists forced major shipping companies to reroute, Washington established a task group on Tuesday to protect Red Sea commerce, raising worries about potential long-term disruptions to global trade. The Houthis, defying a U.S.-led military campaign, pledged to continue targeting Red Sea ships in support of the Hamas movement, which governs the Palestinian enclave of Gaza.

Over 12% of global shipping traffic passes through the Suez Canal and the Red Sea. Despite concerns, the impact on oil supply has been limited as the majority of Middle Eastern crude is exported via the Strait of Hormuz.

In response to potential supply concerns, the United States purchased 2.1 million barrels of petroleum for delivery in February, contributing to a total of around 11 million barrels replenishing the Strategic Petroleum Reserve (SPR). This follows the largest-ever sale of crude oil in history last year.

Data from the American Petroleum Institute revealed an increase in U.S. oil and fuel inventories last week, contrary to analysts’ predictions of a crude stock drop based on a Reuters poll. Official U.S. stock statistics from the U.S. Energy Information Administration (EIA) will be released on Wednesday at 10:30 a.m. ET (1530 GMT).

Looking ahead, the U.S. is witnessing historic oil production, surpassing any other nation, driving strong non-OPEC+ supply growth expected to match rising global demand in 2024, according to S&P Global Commodity Insights. In the fourth quarter, the U.S. produced a total of 21.4 million barrels per day (bpd), with 13.3 million being crude and condensate.

Vice President at S&P Global, Jim Burkhard, noted that not only is the United States producing more oil than any country in history, but the amount exported is nearing the total production of Saudi Arabia or Russia.

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