Oil prices witnessed a substantial rise on Tuesday, December 19, building upon the momentum from the preceding session. The uptick followed attacks by Yemen’s Iran-aligned Houthi militants on ships in the Red Sea, causing disruptions in maritime trade and prompting companies to redirect their vessels.

According to a Reuters report, Brent crude saw an increase of 71 cents, or 0.9%, reaching $78.66 per barrel by 1512 GMT. The U.S. West Texas Intermediate crude for January, set to expire on Tuesday, rose by 88 cents to $73.35. Meanwhile, the more active February contract gained 94 cents, reaching $73.75.

On Monday, crude oil experienced an almost 2% uptick following an assault on a Norwegian-owned vessel. Additionally, BP (BP.L) announced a temporary halt to all transit through the Red Sea, heightening concerns about potential disruptions in the oil supply chain. This development is significant as approximately 12% of global shipping traffic navigates through the Red Sea and the Suez Canal.

“Ships are now being re-routed via the Cape of Good Hope, but not only will this add up to 10 days sailing time, it will cost up to $1 million extra in fuel for every round trip between the Far East and North Europe,” Peter Sand, chief analyst at Xeneta, was quoted as saying by Reuters.

While the assaults on shipping have heightened the risk premium, some analysts have observed that these incidents are unlikely to significantly disrupt the supply chain.

“The actual effect on oil flows is likely to be limited. The attacks have not hit anything that would interfere with production,” said John Evans of oil broker PVM.

On Tuesday, the United States unveiled the establishment of a task force dedicated to protecting Red Sea commerce from disruptions caused by Yemeni militants with ties to Iran. These militants have been responsible for interfering with maritime trade, leading companies to reroute their vessels.

Goldman Sachs analysts have expressed that the disturbance is unlikely to significantly impact crude and liquefied natural gas (LNG) prices. This is attributed to the availability of opportunities to redirect vessels, indicating that production should not be directly hampered.

Another key focus this week revolves around the most recent overview of U.S. supplies. According to a Reuters poll, there is an anticipation of a 2.2 million barrel decline in U.S. crude inventories. The initial supply report of the week, courtesy of the American Petroleum Institute, is scheduled for release at 2130 GMT.

“The broader market sustained its optimism, but the incremental rally is contracting. Investors are cautious ahead of the Eurozone inflation data announcement, which is forecast to drop marginally. The dovish stance by BOJ maintained the market sentiments. Amid this, the price of oil stabilized as the US government announced plans to protect the shipping route through the Red Sea,” said Vinod Nair, Head of Research at Geojit Financial Services.

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Published: 19 Dec 2023, 10:13 PM IST

By admin

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