Oil jumps 1% in New Year after US forces repel Houthis in Red Sea

Representational image. AP

Oil prices rose 1 per cent on Tuesday as a Red Sea naval confrontation focused attention on potential Middle East supply disruptions and prospects of Chinese economic stimulus bolstered demand in the world’s biggest petroleum importer.

Brent crude was up $1.03, or 1.3 per cent, to $78.07 a barrel by 0225 GMT, while US West Texas Intermediate crude was up 88 cents, or 1.2 per cent, to $72.53 per barrel.

According to accounts from American, Maersk, and Houthi officials, US 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 numerous factions in the Middle East that have attacked Israel and US soldiers there, including Hamas, the dominant party in Gaza that is at war with Israel. Wider-ranging hostilities may shut off vital waterways, including the Red Sea and the Gulf’s Straits of Hormuz, that are used to carry oil supplies.

“The oil price may be affected by the escalation of the situation in the Red Sea over the weekend and the peak demand season during China’s Spring Festival,” Leon Li, a Shanghai-based CMC Markets analyst said, referring to the Chinese New Year holiday set for early February.

He added that the forecast holiday demand is raising expectations for a price rebound in January.

Following the naval battle, an Iranian warship has sailed into the Red Sea, Iranian media reported on Monday.

At least four tankers transporting diesel and jet fuel from the Middle East and India to Europe are taking the longer route around Africa to avoid the Red Sea, ship tracking data show.

China stimulus

Investors’ expectations for fresh stimulus measures in China rose after manufacturing activity in December shrank for a third month, government data showed on Sunday. However, a private sector report on Tuesday showed an expansion in the sector last month, though factory owners’ confidence in the 2024 outlook declined from November.

The prospect of slowing global economic growth and growing concerns of rising supply especially from producers outside the Organization of the Petroleum Exporting Countries (OPEC) caused Brent and WTI to fall more than 10 per cent in 2023 to close out the year at their lowest year-end levels since 2020.

Brent crude would average $82.56 a barrel in 2024, a Reuters poll showed on Friday, as analysts predicted weak global growth would cap demand, while geopolitical tensions could provide support. Brent averaged $82.17 in 2023.

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