Oil Steadies as Yemen Attacks Disrupt Maritime Trade
Introduction
Oil prices stabilized on Tuesday as investors assessed the potential impact of attacks by Yemen’s Iran-aligned Houthi gunmen on ships in the Red Sea. These attacks have disrupted maritime trade and forced companies to reroute vessels, raising concerns about oil supply. However, experts believe that the actual effect on oil flows will be limited.
Creation of Multinational Operation
The United States has announced the establishment of a multinational operation to safeguard Red Sea commerce. Several nations, including the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles, and Spain, are participating in this operation. This collaborative effort aims to address the security challenges posed by the attacks and ensure the smooth flow of maritime trade.
Oil Prices
Brent crude, a benchmark for international oil prices, rose by 9 cents to reach $78.04 per barrel by 1100 GMT. Meanwhile, the U.S. West Texas Intermediate crude for January, which expires on Tuesday, decreased by 1 cent to $72.46. The more active February contract only lost 2 cents. Despite the geopolitical risk premium resulting from the attacks, experts believe that the impact on oil flows will be minimal.
Geopolitical Risk Premium
John Evans, an oil broker at PVM, stated that although the attacks on shipping have increased the geopolitical risk premium, they have not targeted anything that would interfere with oil production. Consequently, the disruptions to trade via the Suez Canal, through which approximately 12 percent of global shipping traffic passes, have driven up crude prices by nearly 2 percent.
Impact on Crude and LNG Prices
Goldman Sachs analysts believe that the disruption caused by the attacks is unlikely to have a significant effect on crude and liquefied natural gas (LNG) prices. The ability to reroute vessels suggests that production should not be directly impacted. However, major oil company BP has temporarily halted transit through the Red Sea, and oil tanker group Frontline has announced that its vessels will avoid the route. These actions indicate that the crisis is expanding to include energy shipments.
U.S. Supply Snapshot
This week, market participants will closely monitor the latest snapshot of U.S. oil supplies. According to a Reuters poll, U.S. crude inventories are expected to decline by 2.2 million barrels. The American Petroleum Institute’s supply report, the first of the week, is scheduled to be released at 2130 GMT.
Conclusion
The attacks by Yemen’s Houthi gunmen on ships in the Red Sea have raised concerns about oil supply disruptions and maritime trade. However, experts believe that the impact on oil flows will be limited. The establishment of a multinational operation to safeguard Red Sea commerce demonstrates the international effort to address these security challenges. As the situation unfolds, market participants will continue to monitor oil prices and U.S. supply data for further insights into the market’s stability.
By Alex Lawler
