Red Sea Clash Sends Shivers Down Market Spine: Oil Surges After US Thwarts Houthis

2 Jan 2024 , 09:56 AM

Tuesday saw a 1% increase in oil prices to start the New Year higher as predictions of Chinese economic stimulus increased demand in the world’s biggest petroleum importer and a Red Sea naval battle brought attention to possible Middle East supply disruptions.

Brent crude had increased by $1.03, or 1.3%, to $78.07 per barrel, while U.S. West Texas Intermediate crude had increased by 88 cents, or 1.2%, to $72.53 per barrel.

According to accounts from American, Maersk, and Houthi officials, U.S. helicopters repelled an attack on a Maersk container vessel in the Red Sea on Sunday by Iran-backed Houthi militants, sinking three Houthi ships and killing ten militants. This increased the likelihood that the Israel-Gaza conflict would spread to other parts of the region.

In addition, Tehran backs other factions in the Middle East that have attacked Israel and U.S. forces there. These groups include Hamas, the dominant faction in Gaza that is at war with Israel. Wider-ranging hostilities may shut off vital waterways, like the Red Sea and the Gulf’s Straits of Hormuz, that are used to carry oil supplies.

Iranian television said on Monday that an Iranian warship has entered the Red Sea after the naval combat.

Ship tracking data indicates that in order to avoid the Red Sea, at least four tankers carrying diesel and jet fuel from the Middle East and India to Europe are choosing the longer route around Africa.

Following the government’s Sunday data showing that factory activity in China declined for a third consecutive month, investors’ expectations for additional stimulus measures in the country increased. A study on the private sector released on Tuesday, however, indicated that the industry had grown last month, despite a fall in factory owners’ confidence in the 2024 outlook from November.

Brent and WTI fell more than 10% in 2023, closing the year at their lowest prices since 2020, as a result of mounting fears about rising supply, particularly from countries outside the Organisation of the Petroleum Exporting Countries (OPEC), and the possibility of slower global economic growth.

For feedback and suggestions, write to us at [e-mail]