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Business News/ Markets / Commodities/  Oil prices up $1 as Red Sea tensions lead to supply disruptions; Brent touches $80/bbl

Oil prices up $1 as Red Sea tensions lead to supply disruptions; Brent touches $80/bbl

The crude benchmarks rose by more than $1 earlier in the session as major maritime carriers chose to steer clear of the Red Sea route

Global oil benchmark Brent hovered near $80 a barrelPremium
Global oil benchmark Brent hovered near $80 a barrel

Oil prices rose almost two per cent on Wednesday, December 20, amid jitters over global trade disruption and geopolitical tensions in the Middle East following attacks on ships by Yemen's Iran-aligned Houthi forces in the Red Sea.

Brent crude futures were up 60 cents, or 0.8 per cent, at $79.83 a barrel, while US West Texas Intermediate crude climbed 67 cents, or 0.9 per cent, to $74.61 a barrel, according to news agency Reuters. The benchmarks rose by more than $1 earlier in the session as major maritime carriers chose to steer clear of the Red Sea route, with longer voyages increasing the cost of transport and insurance.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a January 19 expiry, was last trading higher by 1.39 per cent at 6,253 per bbl, having swung between 6160 and 6,289 per bbl during the session so far, against a previous close of 6,167 per barrel.

Also Read: Explained | Who are Houthi rebels causing Red Sea crisis, what do they want

What's driving crude oil prices?

-Oil pared some gains after weekly data from the US Energy Information Administration showed a surprise crude inventory build, larger than expected fuel stocks gains and record domestic oil production.

-On Wednesday, Greece advised commercial vessels sailing in the Red Sea and the Gulf of Aden to avoid Yemeni waters. Greek ship owners control about 20 per cent of the world's commercial vessels in terms of carrying capacity.

-Washington launched a task force to safeguard commerce in the region. However, sources including shipping and maritime security officials told Reuters that few practical details are known about the initiative or whether it will directly engage in the event of further armed attacks.

-The Houthis vowed to defy the US-led naval mission and to keep targeting Red Sea shipping in support of Palestinian enclave Gaza's ruling Hamas movement. About 12 per cent of world shipping traffic passes up the Red Sea and through the Suez Canal. Although oil supply has been realigned, no shortages have yet emerged, according to Reuters.

-In a separate boost to prices, the US bought 2.1 million barrels of crude for delivery in February, its Energy Department said earlier this week, as the country continues to replenish its reserves.

-Analysts attributed the present advance in prices to the interest rate-cut expectations, falling bond yields and dollar and healthy equity markets, along with the geopolitical temperature. Recent data suggests central bank action to quell sticky inflation in Europe had made a meaningful difference.

-German producer prices fell more than expected in November, data showed on Wednesday, a day after it was confirmed that euro zone inflation slowed sharply to 2.4 per cent last month on a year-on-year basis.

-A European Central Bank policymaker, however, cautioned on Wednesday it was "rather unlikely" that interest rates would be cut during the first six months of next year. In Britain, meanwhile, inflation plunged in November to its lowest rate in more than two years, strengthening the case for rate cuts.

Also Read: From $82 to near $100 and back: How Brent crude moved in 2023 over OPEC+ cuts and more

US imposes more Russian oil price cap sanctions

The US-led coalition imposing a price cap on seaborne Russian oil announced changes on Wednesday to its compliance regime that the Treasury Department said will make it harder for Russian exporters to bypass the cap. 

The Treasury also imposed fresh sanctions on a ship manager owned by the Russian government and three oil traders involved in Russian oil trade. The Group of Seven (G7) industrialized countries last year imposed a price cap of $60 per barrel on Russian oil shipments in response to Russia's invasion of Ukraine.

The coalition will soon require Western maritime service providers to get declarations from their counterparties that the Russian oil was sold under the cap each time they lift or load the oil, said the Treasury Department in a statement. The price cap mechanism bans Western companies from providing maritime services, including financing, insurance, and shipping for oil sold above the cap.


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Published: 20 Dec 2023, 10:23 PM IST
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