Oil pumps are seen, as oil and gas activity dips in the Eagle Ford Shale oil field due to the coronavirus disease (COVID-19) pandemic and the drop in demand for oil globally, in Karnes County, Texas, U.S., May 18, 2020. Picture taken May 18, 2020. REUTERS/Jennifer Hiller/File Photo
On the turbulent seas of global trade, the pendulum of oil prices swung decisively on Monday, surging more than 2% in response to the destabilizing maneuvers of Iran-aligned Yemeni Houthi militants in the Red Sea. As maritime trade faced disruptions due to Houthi attacks on ships, the cost of supply ascended, casting a shadow on the world’s energy markets.
A Norwegian-owned vessel fell victim to a Red Sea assault on Monday, prompting oil major BP to temporarily halt all transits through this strategic waterway. Shipping firms, foreseeing the perils ahead, declared their intent to steer clear of this contested route over the weekend.
Brent crude futures boldly climbed $1.91, or 2.5%, reaching $78.46 per barrel, while U.S. West Texas Intermediate crude mirrored the ascent with a $1.73, or 2.4%, rise to $73.16. This marked a notable shift after seven weeks of decline, spurred by a U.S. Federal Reserve meeting that kindled optimism about the cessation of interest rate hikes and the prospect of cuts.
The specter of heightened supply costs loomed large, as an increasing number of oil tankers opted to suspend sails through the Red Sea strait. The Suez Canal, the lifeline for 15% of world shipping traffic, found itself in the crosshairs, prompting London’s marine insurance market to expand the high-risk zone and escalate premiums.
U.S. Defense Secretary Lloyd Austin, recognizing the urgency, announced Washington’s initiative to forge a coalition against the Houthi threat. Virtual talks among defense ministers from the region and beyond were slated for Tuesday, underscoring the gravity of the situation.
Amid the oil price surge, the market also contended with an abundant supply, evidenced by Brent and U.S. crude trading at a discount to future deliveries. Russia, a heavyweight in the oil arena, further influenced the landscape by committing to deeper oil export cuts in December, exceeding prior promises, as part of a concerted effort among major exporters to buttress global oil prices.
Saudi Arabia, not to be outdone, flexed its crude oil muscle in October, boasting the highest export levels in four months, according to data from the Joint Organizations Data Initiative.
Market dynamics, however, indicated some short covering, with money managers scaling back their net long U.S. crude futures and options positions for the eleventh consecutive week, as reported by the U.S. Commodity Futures Trading Commission.
In the wake of today’s rally and the positive momentum from the preceding week, oil, under the astute eye of StoneX’s Fawad Razaqzada, appears to have weathered the storm, possibly signaling a turnaround from the recent downward trajectory.
COMMENTS