Oil Prices Surge in New Year on Middle East Supply Disruption and Chinese Demand Hopes
London, January 1, 2024 – Oil prices experienced a significant increase of over 2 percent in the first trading session of the New Year. This surge was primarily driven by the potential disruption to Middle East oil supply following the recent attack on a container ship in the Red Sea. Additionally, hopes for increased Chinese demand also contributed to the rise in prices.
Brent crude, the international benchmark for oil prices, rose by $1.72 or 2.2 percent to reach $78.76 per barrel by 1115 GMT. Meanwhile, U.S. West Texas Intermediate crude saw an increase of $1.57 or 2.2 percent, reaching $73.22 per barrel.
According to a Reuters survey of economists and analysts, it is predicted that Brent crude will average $82.56 per barrel this year, slightly higher than the 2023 average of $82.17. However, weak global growth is expected to limit demand. Nevertheless, geopolitical tensions could provide support for prices.
Over the weekend, U.S. helicopters successfully repelled an attack by Iran-backed Houthi forces on a Maersk container vessel in the Red Sea. This resulted in the sinking of three Houthi vessels and the death of 10 militants. The incident has raised concerns about the Israel-Hamas conflict potentially escalating into a wider conflict. Analysts suggest that this escalation, along with the upcoming peak demand season during China’s spring festival, could impact oil prices.
The closure of crucial waterways for oil transportation is a significant risk if a wider conflict were to occur. This would further disrupt oil supply and potentially lead to higher prices.
In response to China’s manufacturing activity shrinking for the third consecutive month in December, investor expectations of fresh economic stimulus measures have risen. The implementation of such measures to stimulate economic growth could boost oil demand and provide support for crude prices.
As at least four tankers carrying diesel and jet fuel from the Middle East and India to Europe are currently sailing around Africa to avoid the Red Sea, it is evident that the potential disruption to oil supply in the region is being taken seriously.
In conclusion, the surge in oil prices at the start of the New Year can be attributed to the potential disruption to Middle East supply and hopes for increased Chinese demand. While weak global growth may limit demand, geopolitical tensions and the possibility of economic stimulus measures could provide support for crude prices.
