Oil maintained its gains following fresh strikes by the US and UK against Iran-backed Houthi rebels in Yemen, escalating tensions in the Middle East and countering concerns about global supply abundance.
The global benchmark Brent held steady around $80 a barrel, marking a nearly 2% surge on Monday, while West Texas Intermediate traded below $75. The recent strikes targeted eight Houthi locations to thwart potential attacks on commercial vessels in the Red Sea.
The week commenced with a rise in crude prices amid reports of Ukrainian drone attacks on Russia’s Baltic coast energy facilities, introducing a new dimension to their conflict nearly two years after Moscow’s invasion.
Despite various geopolitical tensions and OPEC’s commitment to production cuts, the crude market has struggled to establish a clear trajectory. Geopolitical concerns have been offset by signs of ample non-OPEC output, including the resumption of flows from Libya’s largest field and the recovery of US drillers from operational disruptions caused by severe weather.
The recent attack in Russia serves as a reminder of ongoing conflicts in two key energy-producing regions, emphasized Robert Rennie, head of commodity & carbon research at Westpac Banking Corp. Although US production was impacted by severe weather, and OPEC+ cuts are expected to take effect, the return of supply from Libya’s Sharara field is anticipated to alleviate some tightness in oil inventories.
On Monday, Brent achieved its first close above $80 a barrel in the current year. Its prompt timespread, indicating the difference between its two nearest contracts, stood at 46 cents a barrel in backwardation, signaling a bullish near-term market structure compared to 3 cents on the first trading day of 2024.
The Houthi rebels attribute their attacks on vessels off Yemen’s coasts to their support for Hamas in its conflict with Israel in Gaza. These assaults have significantly reduced transits through the Red Sea and Suez Canal, leading to heightened transport and insurance costs for shippers and raising concerns about a broader conflict in the Middle East.
