Geopolitical Unrest Ignites Crude Price Surge: Houthi Rebels Target Oil Tanker in the Red Sea

Photo by Maria Lupan on Unsplash

Crude oil prices experienced a rebound on Friday and reached the highest level in two months. This surge followed a missile strike by Houthi rebels on a UK oil tanker in the Red Sea. The March West Texas Intermediate (WTI) crude oil, or CLH24, saw a gain of 0.65, which represented a 0.84% increase. Similarly, the March Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline, or RBH24, closed up 3.48, showing a 1.52% increase.

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Initially, crude prices faced a decline due to concerns about mixed global economic reports impacting energy demand. However, when Houthi rebels intensified their attacks on commercial shipping in the Red Sea, specifically targeting a UK oil tanker in the Gulf of Aden, crude prices surged and recovered from the earlier dip.

The upward trend in crude prices was further supported by geopolitical tensions in the Middle East. Ongoing airstrikes by the United States and the United Kingdom against Houthi rebels in Yemen contributed to market fluctuations. Additionally, the Red Sea became a focal point for disruptions, with shippers being advised to avoid the southern Red Sea. This caused a diversion of shipments around the southern tip of Africa.

The unrest in the Red Sea was not the only factor impacting crude prices. A Ukrainian drone attack on Russia's Rosneft PJSC's major Tuapse refinery added to the support for crude prices. The refinery, which processes 180,000 barrels per day (bpd) of crude, is set to be shut down until at least February. This raised concerns about reduced Russian crude exports due to recent drone attacks on oil facilities.

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On Friday, mixed global economic news exhibited a decline in German February GfK consumer confidence and Japan's November leading index CI reached a three-year low. However, there was positive news from the United States as December personal spending surpassed expectations, rising by 0.7% month-on-month.

The decrease in Russian crude oil exports, evident in a decline in refined fuel shipments, continued to support crude oil prices. However, the announcement of the resumption of crude flows from Libya's Sharara oil field had a bearish effect on crude oil prices. Sharara is Libya's largest oil field, producing about 300,000 bpd.

Although the increase in crude stored in floating storage had a negative impact, the overall market sentiment was influenced by the agreement among OPEC+ members to cut crude production by 1.0 million bpd until June 2024. Initially, the lack of detailed distribution among members led to a selloff in the market. Market participants are now eagerly waiting for individual country announcements to finalize the agreement's details.

The Energy Information Administration (EIA) report released on Wednesday indicated a decline in U.S. crude oil inventories below the seasonal 5-year average. Additionally, there was a drop in U.S. crude oil production. On another note, Baker Hughes reported a slight increase in the number of active U.S. oil rigs.

The complex interplay of geopolitical tensions, global economic indicators, and production-related developments continues to influence crude oil prices. Market participants are closely monitoring the evolving situation.

Trade Caution and Strategies for Successful  Trading

• Monitor crude oil prices regularly to stay updated on market fluctuations. 💰
• Stay informed about geopolitical tensions and their potential impact on crude oil prices. 🌍
• Track news about disruptions and attacks on oil facilities, such as the Houthi rebels' activities in the Red Sea and the Ukrainian drone attack on Rosneft PJSC's Tuapse refinery. 🚢🛢️
• Keep an eye on reports of global economic indicators, including consumer confidence, leading indexes, and personal spending. 📈💲
• Watch for announcements and details regarding the distribution of crude production cuts among OPEC+ members. 🛢️
• Stay updated on U.S. crude oil inventories, production levels, and the number of active oil rigs. 🇺🇸💡
• Continuously monitor the complex interplay of geopolitical tensions, economic indicators, and production-related developments influencing crude oil prices. 📊

@Jasikaran Vickneswaramoothy is a legal reporter for the Swiss Financial Times.

Input from Google, Barchart and TradingView's personal analytics.