Oil begins the new year with a 1% jump

Oil prices surged by 1 percent on Tuesday, initiating the new year on a positive note. The uptick was attributed to a naval clash in the Red Sea, drawing attention to potential supply disruptions in the Middle East. Additionally, expectations of economic stimulus in China bolstered demand prospects in the world’s largest crude importer.

As of 0225 GMT, Brent crude experienced a $1.03 increase, marking a 1.3 percent rise to reach $78.07 per barrel. Meanwhile, US West Texas Intermediate crude recorded $72.53 per barrel, reflecting an 88-cent increase, or 1.2 percent.

The risk of the conflict between Israel and the Gaza Strip escalating into a broader regional conflict heightened over the weekend. US helicopters reportedly thwarted an attack by Houthi militants on a Maersk container ship in the Red Sea, sinking three Houthi ships and resulting in the death of 10 militants, according to accounts from American, Maersk, and Houthi officials. The potential expansion of the conflict in Gaza raises concerns about the closure of vital waterways for oil transport, such as the Red Sea and the Strait of Hormuz in the Gulf.

Leon Li, an analyst at CMC Markets in Shanghai, noted that the oil price might be influenced by the escalating situation in the Red Sea over the weekend and the upcoming peak demand season during the Chinese New Year in early February. Li added that the anticipated demand during the holidays raises expectations for a price recovery in January.

Furthermore, investor expectations for new stimulus measures in China received a boost following a contraction in manufacturing activity for the third consecutive month in December, as revealed by government data on Sunday. Despite a decline in factory owners’ confidence in the 2024 outlook compared to November, a private sector report on Tuesday showed growth last month. These factors contribute to the complex dynamics influencing oil prices at the start of the year.