Business a.m
Oil prices rose to two-week highs on growing concerns that geopolitical tensions in the Red Sea could disrupt global crude supply.
U.S. crude futures rose 1.4 per cent to $74.99 a barrel, while Brent futures were up 1.3 per cent to $80.23 a barrel.
The recent surge in both the U.S. and Brent crude benchmarks has been driven by concerns that attacks on ships in the Red Sea by the Iran-aligned Yemeni Houthi militant group could disrupt the global supply of crude. The Houthis have been accused of attacking ships in the Red Sea with missiles and drones in recent weeks, causing a spike in oil prices.
The Red Sea is a crucial shipping route for global trade, with around 12% of the world’s shipping traffic passing through the Suez Canal. Much of this traffic is heading to important Asian markets, making any disruption to the flow of oil and goods through the Red Sea a significant concern for the global economy.
In response to the increased tensions in the Red Sea, the United States has announced the formation of a multinational naval task force to defend the flow of commerce in the region. However, the Houthis have vowed to continue their attacks, which they claim are in support of the Palestinian people in Gaza.
The recent oil market worries have put a “risk premium” back into the price of crude. This has been a result of increased geopolitical tensions in the Red Sea, despite data from the American Petroleum Institute (API) showing that U.S. crude inventories unexpectedly increased in the week to December 15. The API data showed that crude stockpiles increased by 0.9 million barrels, rather than the expected decrease of 2.2 million barrels.
The data indicated that U.S. crude supplies remained high as U.S. production reached record-high levels in an effort to fill the gap left by OPEC’s production cuts. The organisation’s decision to reduce production has put upward pressure on oil prices and has created opportunities for U.S. producers to increase production and fill the supply gap. This increased production has been reflected in the rise in crude inventories, but it has not been enough to offset the geopolitical risks in the Red Sea.
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