In a fluctuating market influenced by both geopolitical tensions and shipping disruptions, oil prices experienced a more than 1% decline on Thursday. The decrease followed the easing of concerns about shipping disruptions along the Red Sea route, even as broader tensions in the Middle East persisted.
Front-month February Brent crude futures witnessed a decline of $1.02, approximately 1.3%, settling at $78.63 a barrel ahead of their imminent expiry. The more active March contract also faced a dip of 92 cents, around 1.2%, reaching $78.62 a barrel. Simultaneously, U.S. WTI crude futures traded 82 cents, or roughly 1.1%, lower at $73.29 a barrel.
The drop in oil prices on Thursday followed a nearly 2% decline on Wednesday, coinciding with the return of major shipping firms to the Red Sea. Denmark’s Maersk, a prominent player in global shipping, revealed plans to reroute almost all container vessels between Asia and Europe through the Suez Canal, opting to divert only a handful around Africa.
Shipping disruptions emerged earlier in the month when major companies, including Maersk and Hapag-Lloyd, halted the use of Red Sea routes and the Suez Canal due to attacks by Yemen’s Houthi militant group. While concerns have alleviated with some shipping firms resuming operations, the geopolitical landscape remains complex.
Efforts by a U.S.-led coalition to address tensions in the Red Sea have encountered challenges, with several allies hesitant to participate. The ongoing conflict in Gaza has contributed to the hesitancy, highlighting global diplomatic divisions.
Israel’s intensification of its ground war in Gaza has added to the complexities of the situation. Israel’s chief of staff, Herzi Halevi, signaled that the conflict would persist “for many months.”
The delayed release of U.S. government data on fuel stockpiles, combined with insights from the American Petroleum Institute, indicated a rise of 1.84 million barrels in crude stocks for the week ending December 22. This contrasted with analyst estimates, contributing to the market’s nuanced response.
Looking ahead, the potential for interest rate cuts in Europe and the U.S. in 2024 emerged as a positive factor from an oil demand perspective. Analysts suggest that the market might explore upside potential in the early new year, anticipating a recovery in fuel demand fueled by monetary easing in the United States and heightened kerosene demand during the northern hemisphere’s winter.
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Credit: Natalie Grover and Noah Browning