After strikes by the U.S. and British army to stop Houthi militias in Yemen from targeting shps in the Red Sea. Oil prices inched up on Monday as traders monitored developments in the Middle East amid concerns of supply disruptions.
Brent crude futures rose 13 cents, or 0.2%, to $78.42 a barrel by 04:05 GMT, following a 1.1% increase on Friday. U.S. West Texas Intermediate crude rose 0.1%, or 5 cents, reaching $72.73 a barrel after a nearly 1% rise in the previous session.
The benchmarks surged over 2% last week to reach their highest intra-day levels this year after U.S. and British forces carried out numerous air strikes against Houthi forces. This retaliation came after months of Houthi attacks on Red Sea shipping, which they claimed were in response to the conflict in Gaza.
“There are supply risks for the market given the escalation in (the) Red Sea,” Warren Patterson, head of commodities research at ING, noted. “However, for now we are not seeing any impact on oil supply. And I guess we would need to see significant escalation before that happens.”
The Houthi militia threatened a “strong and effective response” after another U.S. strike on Sunday, heightening tensions. President Joe Biden confirmed sending a private message to Iran regarding the Houthi attacks. Tanker owners avoided the Red Sea, and some vessels changed course after the strikes, with attention on potential responses from Iran and impacts on shipments in the vital Strait of Hormuz.
Goldman Sachs analysts observed, “As the Middle East conflict is currently not affecting oil production, the geopolitical risk premium priced in oil prices now appears modest based on the implied volatility of options.”
“While unlikely to materialise in our view, we estimate that oil prices would rise 20% in the first month of a Strait of Hormuz interruption and may temporarily double in a less likely extended disruption.”
In Libya, protests against perceived corruption threatened to shut down two more oil and gas facilities following the closure of the 300,000 barrel-per-day Sharara field on Jan. 7. In the U.S., power and natural gas companies prepared for extreme cold over the Martin Luther King Day holiday weekend, expecting record gas demand and reduced supplies due to frozen wells. The Texas power grid operator appealed to the public for energy conservation on Sunday.