Oil climbs amid Red Sea attacks, Fed’s rate cut expectations

Tuesday saw a more than 2% increase in oil prices, reaching their highest point since December 1. Concerns about potential interruptions to oil shipments were raised by recent attacks on ships in the Red Sea.

Expected Fed interest rate reduction, which might spur economic growth and increase demand for energy, also helped oil prices.

The price of Brent oil futures increased by $2, or 2.5%, to $81.07 a barrel at the end of the trading day, and at the time of writing, Brent is trading at $80.50 per barrel after jumping as much as 3.4% earlier on the day, US West Texas Intermediate crude saw an increase of $2.41. the American crude is trading at $ 75.25 per barrel at the time of writing.

The surge, which occurred in light trading amid some markets being closed for the holidays, added to the roughly 3% gains made last week as investors were alarmed by Houthi attacks on ships and the conflict in Gaza didn’t appear to be abating.

The Middle East is currently experiencing high levels of geopolitical tension, which has raised concerns about the security of the transit of goods, including oil.

The Houthi movement, backed by Iran, is based in Yemen. On Tuesday, it launched a missile strike on a container ship in the Red Sea and attempted to launch a drone attack against Israel.

As the conflict with Hamas-led terrorists in the Gaza Strip spreads to other parts of the region and the number of Palestinian casualties keeps rising, an Israeli minister on Tuesday implied that his nation has responded to attacks against it in Iraq, Yemen, and Iran.

Ship rerouting and worries about the Middle East haven’t yet had an impact on actual supplies.

Concerns have been somewhat allayed by Maersk’s announcement on Sunday that shipping routes across the Red Sea will once again be operational, and by CMA CGM of France, more ships will be passing through the traditional naval route.

The Red Sea was no longer an option for some shipping corporations, and they began charging extra to reroute ships. The Suez Canal, a vital shipping route utilized for roughly 12% of world trade, joins the Red Sea.

Ships are increasingly circumnavigating the Horn of Africa due to security concerns in the Red Sea, which raises costs and increases danger. This might prove to be an unfavourable beginning for 2024. The assault against Hamas in Gaza, according to Israel’s military chief, Herzi Halevi, is expected to last for several months.

Anticipations that the Federal Reserve will lower interest rates in 2019 also helped oil prices. Reduced interest rates save consumers’ borrowing expenses, which can increase demand for oil and spur economic growth.

Tuesday saw a little decline in the dollar index, bringing it closer to the five-month low of 101.42 reached on Friday. Demand is increased when oil denominated in dollars becomes more affordable for investors holding other currencies due to a weaker currency.

The percentage of traders betting that the central bank will decrease interest rates by at least 25 basis points in March 2024 has increased to 86% from roughly 21% in November.

According to a preliminary Reuters poll, US crude stockpiles were predicted to have decreased by roughly 2.6 million barrels in the week leading up to December 22, while inventories of petrol and distillate probably increased.