Oil prices experienced a decline of more than 1% on Thursday as apprehensions surrounding shipping disruptions in the Red Sea eased, despite ongoing tensions in the Middle East. Front month February Brent crude futures exhibited a decrease of $1.02, approximately 1.3%, settling at $78.63 per barrel by 1443 GMT, in a subdued trade preceding their imminent expiry. Simultaneously, the more active March contract recorded a 1.2% drop, with a reduction of 92 cents, reaching $78.62 a barrel. U.S. WTI crude futures also witnessed a decline of about 1.1%, trading 82 cents lower at $73.29 a barrel. Wednesday saw a nearly 2% drop in oil prices as major shipping companies resumed operations in the Red Sea.
Denmark’s Maersk (MAERSKb.CO) announced a strategic shift, indicating that almost all container vessels sailing between Asia and Europe will now transit through the Suez Canal, with only a handful being diverted around Africa. This move, as revealed by a Reuters breakdown of the group’s schedule on Thursday, follows the disruption caused by Yemen’s Houthi militant group targeting vessels, prompting major shipping firms, including Maersk and Hapag-Lloyd (HLAG.DE), to cease using Red Sea routes and the Suez Canal earlier this month.
Despite the escalation of tensions, a U.S.-led coalition aimed at mitigating Red Sea tensions has not yielded the coordinated action anticipated. A week after the maritime force’s launch, several allies appear hesitant to associate with it, reflecting the geopolitical divisions stemming from the conflict in Gaza. The U.S. has maintained staunch support for Israel amidst rising international criticism over its offensive, complicating efforts to address Red Sea disruptions effectively.
Israel’s intensification of its ground war in Gaza, particularly since just before Christmas, has led to a prolonged conflict, with Israel’s Chief of Staff Herzi Halevi stating that the war is expected to continue “for many months.”
On the economic front, U.S. government data on fuel stockpiles, initially scheduled for release on Thursday, has been delayed by a day due to the Christmas holiday on Monday. Data from the American Petroleum Institute industry group on Wednesday revealed a surprising increase in crude stocks by 1.84 million barrels in the week ending Dec. 22, contradicting estimates from seven analysts polled by Reuters, who anticipated a drop of 2.7 million barrels.
A notable factor influencing the oil market is the growing prospect of interest rate cuts in both Europe and the U.S. in 2024, which is viewed positively from an oil demand perspective. Hiroyuki Kikukawa, President of NS Trading, a unit of Nissan Securities, expressed optimism, stating, “The market is likely to try the upside again … maybe in the early new year, also on expectations of a recovery in fuel demand thanks to monetary easing in the United States and higher kerosene demand during the winter in the northern hemisphere.”
In conclusion, the recent easing of tensions in the Red Sea and the strategic shifts in major shipping routes have contributed to a decline in oil prices, while the outlook remains influenced by geopolitical uncertainties and the potential impact of interest rate cuts on oil demand in the coming year.
Source: Reuters
