Following the lead of four international shipping giants, including Maersk, British Petroleum (BP), and Norwegian oil and gas giant Equinor, announced on Monday a halt to all transportation through the Red Sea. Citing deteriorating security conditions in the Red Sea, BP declared a suspension of all its oil tanker operations in the region.
The growing avoidance of the Red Sea by oil companies and tanker owners led to a significant surge in oil prices on Monday. West Texas Intermediate (WTI) crude oil prices soared by 4%, breaking past $74 per barrel and reaching a two-week high.
According to CCTV News, on the afternoon of December 18, Yemen's Houthi rebels announced attacks on two cargo ships in the Red Sea. After refusing to comply with the orders of the Houthi "navy," the rebels dispatched two "naval aircraft" to attack the vessels. The Houthis also declared a continued prohibition on ships of any nationality heading to Israeli ports in the Red Sea until permission is granted to transport food, medicine, and other supplies into the Gaza Strip. The Houthis emphasized that they would not target ships unrelated to Israel and navigating normally in the Red Sea.
Analysts suggest that the recent frequent attacks by the Houthi rebels on commercial ships in the Red Sea, coupled with the escalating risks of the Israeli-Palestinian conflict spilling over, have impacted international shipping. The Suez Canal, a major shipping "artery," faces the risk of closure.
Despite geopolitical risks, oil prices have fallen more than 20% from their late September peak and are down about 9% for the year, due to increased U.S. shale oil supply and investor skepticism about OPEC+'s commitment to production cuts. The dovish shift in the Federal Reserve's interest rate policy outlook has recently boosted oil prices, although several Fed officials have tried to dispel market bets on significant rate cuts next year.
The monthly contract spreads in the oil market, which reflect supply and demand, continue to show weak demand. WTI crude oil is in a contango situation, with a spot spread of 35 cents, the largest since February this year. Contango, where future prices are higher than current spot prices, suggests ample supply or relatively weak current market demand for the commodity.
By Monday's close, oil prices had given up most of their gains for the day, indicating that geopolitical factors have limited impact on oil prices against a gloomy macroeconomic backdrop. WTI crude for January delivery closed up $1.04, or 1.46%, at $72.47 per barrel, while Brent crude for February delivery closed up $1.40, or 1.83%, at $77.95 per barrel.
