Red Sea Attack Blazes Oil Prices 1% Higher as Supply Fears Flare

29 Jan 2024 , 09:36 AM

Oil prices surged by 1% on Monday due to concerns over fuel supply following a missile attack on a Trafigura-operated fuel tanker in the Red Sea. Additionally, worries about a decline in Russian refined products exports intensified as several refineries are undergoing repairs following drone attacks.

Brent crude futures experienced an 83-cent increase, reaching $84.38 per barrel by 2341 GMT, with a session-high of $84.80. U.S. West Texas Intermediate crude also saw a rise of 78 cents, reaching $78.79 per barrel.

Commodities trader Trafigura, on Saturday, announced an assessment of the security risks associated with further Red Sea voyages after a tanker, attacked by Yemen’s Houthi group a day earlier, was successfully extinguished by firefighters.

ANZ analysts noted, ‘Disruptions to supply have been limited, but that changed on Friday after an oil tanker operating on behalf of Trafigura was hit by a missile off the coast of Yemen.’ The potential threat to oil tankers linked to the U.S. and UK may lead the market to reevaluate the risk of supply disruptions.

Both Brent crude and U.S. West Texas Intermediate crude marked a second consecutive week of gains, reaching their highest levels in nearly two months on Friday. The support came from concerns about Middle East and Russian supply, coupled with positive U.S. economic growth and indications of Chinese stimulus, which boosted demand expectations.

Russia is anticipated to reduce exports of naphtha, a crucial petrochemical feedstock, by approximately 127,500 to 136,000 barrels per day—equivalent to about a third of its total exports. This reduction follows operational disruptions at refineries located on the Baltic and Black Seas due to fires, according to information from traders and LSEG ship-tracking data.

On February 1, leading ministers from the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, are scheduled to meet online. While discussions will revolve around oil production levels for April and beyond, OPEC+ sources indicate that decisions on further output policy are likely to be deferred to subsequent weeks, as the meeting is too early for such determinations.