On Friday, oil prices experienced a sharp surge as geopolitical tensions heightened in the Red Sea. The catalyst for this surge was a series of attacks by the United States and its allies targeting Yemeni sites controlled by Iran-backed Houthi rebels.
West Texas Intermediate (WTI) crude prices, represented by CL=F, saw a remarkable 3% increase at session highs, breaking the $75 per barrel mark. Simultaneously, the international benchmark, Brent crude oil (BZ=F), climbed as much as 3%, reaching a session high exceeding $80.70 per barrel. However, both WTI and Brent later moderated some of these gains in mid-morning trade.
President Biden, in a statement delivered on Thursday, explained the motivation behind the strikes, stating, “These strikes are in direct response to unprecedented Houthi attacks against international maritime vessels in the Red Sea.”
The oil market has been teetering as traders grapple with the juxtaposition of geopolitical risks and the increasing oil supplies from the United States and other nations.
Peter McNally, Global Sector Lead for Industrials, Materials, and Energy at Third Bridge, emphasized the impact of the conflict, saying, “While higher global stocks of oil provide a buffer to small disruptions, the escalation of conflict on the Arabian Peninsula itself with a US-led military strike against Houthi rebels is shaking the crude oil market out of complacency.”
There is a growing concern that further escalation in the region could elevate fears of a broader war involving Iran, a country that produces close to 3 million barrels of oil per day. Jay Hatfield, CEO at Infrastructure Capital Advisors, warned of potential consequences, stating, “If Iranian production was interrupted, there could be a rise in global prices of up to $30 per barrel.”
Given the heightened tensions, the global shipping industry has advised vessels to avoid the Red Sea region, which serves as a critical pathway between Asia and Europe, connecting to the Suez Canal.
Bloomberg reported on Friday that Danish oil tanker group Torm (TRMD) had decided to halt all shipments through the southern Red Sea. Torm owns more than 80 vessels responsible for transporting refined energy products and chemicals.
The Houthi attacks in the Red Sea, motivated by solidarity with Palestinians in the Israel-Hamas conflict, have been escalating over the past month. Freightos Terminal, a shipping data platform, reported that “at least 23 commercial vessels have been targeted” since mid-November.
In response to the attacks, shipping rates have surged, with major players like Maersk and Hapag-Lloyd announcing a pause in voyages through the region. Goldman Sachs analysts estimate that 70%-80% of vessels have been rerouted as of last month, resulting in journeys that are 30% longer and more expensive.
Goldman analyst Patrick Creuset highlighted the potential consequences, stating, “Re-routing of vessels from Suez via the Cape in response to recent attacks on commercial vessels in the Red Sea is significantly reducing available space on container ships. Depending on how long the disruption lasts, it could lead to supply chain disruptions and significantly higher transport costs, especially on Asia-Europe trades.”
In conclusion, the surge in oil prices amid escalating tensions in the Red Sea underscores the delicate balance between geopolitical uncertainties and the global energy market’s vulnerability to regional conflicts.
Source: Yahoo Finance
