Oil jumps over 2% to hit 1-month high on Red Sea attacks, US rate cut hopes
The rally – in thin trade with some markets closed for public holidays, added to last week’s gains of about three per cent after Houthi attacks on ships disrupted global shipping and trade while the Israel-Hamas conflict shows no sign of easing.
Brent crude futures were up by $1.79, or 2.3 per cent, at $80.86 a barrel and earlier reached $81.23, the highest since December 1. US West Texas Intermediate crude rose by $1.89, or 2.6 per cent, to $75.45, according to news agency Reuters.
Also Read: India’s crude oil output down 0.4% to 2.4 MMT in November, imports decrease 2.3% YoY: PPAC
Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a January 19 expiry, settled 2.53 per cent lower at ₹6,319 per bbl, having swung between ₹6,101 and ₹6,322 per bbl during the session, against a previous close of ₹6,163 per barrel.
What’s driving crude oil prices?
-Despite concern about the Middle East and the re-routing of ships, actual supply has not yet been affected. Maersk on Sunday announced the restart of shipping routes through the Red Sea, easing the concerns to some extent. Analysts said that the lack of oil supply disruptions is offsetting the support to prices from ongoing geopolitical tensions in the Middle East.
-Shipping companies had stopped sending vessels through the Red Sea and imposed surcharges for re-routing ships. The Red Sea connects with the Suez Canal, a major shipping route used for about 12 per cent of global trade. Germany’s Hapag-Lloyd will decide on Wednesday how it will proceed with its Red Sea routes after suspending shipments there, according to Reuters.
-Two explosions in the Red Sea were reported by a vessel sailing off the coast of Yemen on Tuesday shortly after two unmanned aircraft were sighted. Oil also found support from expectations that the Fed will cut interest rates next year. Lower interest rates cut consumer borrowing costs, which can boost economic growth and oil demand.
-Oil prices also eased last week over expectations Angola could increase oil output after leaving the Organisation of Petroleum Exporting Countries (OPEC) cartel. Crude is headed for its first annual drop since 2020 as surging production from the US and elsewhere counters efforts by the OPEC cartel to support prices through output cuts
-An Israeli minister hinted on Tuesday that the country had retaliated in Iraq, Yemen and Iran for attacks carried out against it as the war with Hamas-led Palestinian militants in the Gaza Strip widens to other areas of the region.
Where are prices headed?
Analysts said that crude oil exhibited notable volatility, marking its second consecutive week of gains in the international markets. Although there was some profit-taking observed on Friday, the commodity closed the week with a net gain.
The prevailing tensions in the Red Sea counteracted the impact of Angola’s departure from the OPEC nations, noted market experts. Additionally, last week’s release of US economic data surpassed expectations, providing further support to oil prices.
The weakening dollar index and US bond yields also contributed to the favourable conditions for oil prices. The increase in US crude oil inventories during the past week acted as a limiting factor on gains, with inventories surging by 2.9 million barrels, imposing a cap on potential upside movements.
‘’Anticipating ongoing volatility, we project crude oil prices to remain dynamic. Support levels for crude oil are identified at $73.10–72.30, with resistance levels at $74.50-75.10 for the current session. In terms of INR, crude oil finds support at ₹6,070-5,960, while encountering resistance at ₹6,240-6,320,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
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Published: 26 Dec 2023, 10:17 PM IST
