Oil Prices Climb as Red Sea Tension Extends

Crude oil prices climbed on Thursday amidst tension in the Red Sea, and unsettled conflict in the Middle East ahead of the release of US inflation data.

The international benchmark crude Brent traded at $77.41 per barrel, translating to a 0.79% increase from the closing price of $76.80 a barrel in the previous trading session on Wednesday.

The American benchmark, West Texas Intermediate (WTI), traded at the same time at $71.92 per barrel, up 0.77% from Wednesday’s close of $71.37 per barrel.

Later on Thursday, the US consumer price index will be announced. Analysts predict that the US Federal Reserve (Fed) will use this inflation data when making future interest rate decisions.

Experts predict that the Fed will maintain current interest rates at its January meeting, but the first interest rate decrease may occur at its March meeting.

The financial results of major US banks, including JPMorgan Chase, Citibank, Bank of America and Wells Fargo, to be released Friday will offer economic activity indicators. Should the outcome signal an uptick in activity, oil demand will subsequently rise to buoy prices further.

Ongoing tension in the Red Sea continues to impact oil prices. Following the recent action of the Houthis in Yemen against commercial ships in response to Israel’s attacks on Gaza, many shipping companies decided to stop their voyages in the Red Sea.

The majority of the world’s oil reserves are found in the Middle East, where tensions are still on the rise. This is raising fears that disruptions to energy exports could lead to a global supply chain crisis.

The weakening of the US dollar against other currencies also aided oil price rises by bolstering trade with foreign currency traders, who were encouraged to buy cheaper dollar-indexed oil.

The US dollar index, which measures the US dollar’s value against other currencies, fell 0.15% to 101.927 at 10.12 a.m. local time (0712 GMT).  Naira Lost 11% as Banks Issue New Update on FX Spending

Meanwhile, official stock data released by the US Energy Information Administration (EIA) on Thursday revealed that stocks in the US, the world’s largest oil-consuming country, increased by 1.3 million barrels to 432.4 million barrels. This stock rise signals slowing demand and is contrary to the market expectation of a 1.2-million-barrel inventory drop.

The oil market managed to move higher yesterday following the aggressive sell-off on Monday. ICE Brent rallied by a little more than 1.9%, while the prompt Brent time spread also managed to see its backwardation widen.

However, for now, the flat price remains firmly below US$80/bbl and with the balance expected to be fairly comfortable over 1H24, significant upside is probably limited.

The API reported overnight that US crude oil inventories fell by 5.2m barrels, which is more than the market was expecting.

However, large builds were once again seen on the products side, with gasoline and distillate stocks increasing by 4.9m barrels and 6.9m barrels respectively.

If the EIA’s weekly report confirms a build in distillates, it will be the seventh consecutive week of stock increases, which will further help ease tightness concerns in the middle distillate market, ING commodities strategists said in a note.

The EIA yesterday released its Short-Term Energy Outlook, which includes its latest US crude oil production forecasts. The EIA revised its US output growth for 2024 up from 190k b/d last month to 290k b/d.