(Bloomberg) — Oil rose in New Year trading after Iran sent a warship into the Red Sea, escalating Middle East tensions, and as the outlook for Chinese crude demand brightened.
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Brent crude climbed as much as 2.6% to top $79 a barrel, before paring some of that gain. The deployment of an Iranian warship comes after the US Navy said that American forces were fired upon when responding to a distress call from a vessel in the Red Sea, the latest flashpoint on the key maritime corridor over the past few weeks. Defense and shipping stocks were also trading higher on Tuesday.
Attacks on merchant shipping in the region have led to the re-routing of everything from container ships to gas carriers. The most recent such move came as two crude tankers diverted away from loading in Sudan, though one was replaced by a different vessel. Still, even as some companies and shipowners stay away, the wider impact on supply has been contained for now.
Geopolitics is threatening to inject fresh impetus into an oil market that last year fell for the first time since 2020. As 2024 gets under way, there’s been close focus on supply as high output from the US and other producers outside of OPEC and its allies counters the cartel’s output curbs.
A bumper crude import quota from China, the world’s largest buyer, added to oil’s momentum. Private refiners and traders received an allocation for crude purchasing that almost matched the one they received for the entire of last year, potentially boosting the outlook for the country’s consumption.
Disruption in the Red Sea is “a reminder of a potential volatile year ahead,” according to Ole Hansen, head of commodities strategy at Saxo Bank A/S, adding that speculators have been ramping up net-bullish wagers in crude. “Extended OPEC+ cuts and geopolitical concerns may attract most of the attention.”
The latest cuts from the Organization of Petroleum Exporting Countries and its allies will take effect this quarter, and could then be extended further. Traders have generally been wary of the Nov. 30 pledge from OPEC+ to slash production further, remaining skeptical of its implementation.
A Houthi delegation met with officials in Tehran after the US response to the attack on a Danish-owned container ship. AP Moller-Maersk A/S has again suspended all Red Sea transit to assess the situation in the vital waterway.
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–With assistance from Jonas Ekblom.
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Barbara Terrio is a seasoned business journalist, delving into the world of finance, startups, and entrepreneurship. With a knack for demystifying complex economic trends, she helps readers navigate the business landscape. Outside of her reporting, Barbara is an advocate for financial literacy and enjoys mentoring aspiring entrepreneurs.
