SINGAPORE – Oil prices jumped more than 1 per cent on Jan 2, after Iran sent a warship to the Red Sea in response to the US Navy’s sinking of three Houthi boats over the weekend, adding to regional tensions as ships continue to avoid the key waterway.
Brent crude prices climbed 1.6 per cent to US$78.27 as at 12.24pm Singapore time, after declining 5 per cent over the prior three sessions, with West Texas Intermediate (WTI) up 1.4 per cent to US$72.64.
The risks of the Israel-Gaza conflict morphing into a wider regional conflict rose over the weekend after United States helicopters repelled an attack on Dec 31 by Iran-backed Houthi militants on a Maersk container vessel in the Red Sea, sinking three Houthi ships and killing 10 militants.
In response, Iran’s Alborz destroyer entered the vital waterway on Jan 1, state media said.
Iran supports Hamas, the ruling faction in Gaza fighting Israel. A wider conflict could close crucial waterways for the transportation of oil supplies such as the Red Sea and the Straits of Hormuz in the Gulf.
A Houthi delegation met with officials in Tehran after the US response to the attack on a Danish-owned container ship. AP Moller-Maersk has again suspended all Red Sea transit to assess the situation in the vital waterway.
“Ongoing geopolitical tensions are anticipated to provide support to prices,” said Ms Priyanka Sachdeva, senior market analyst at brokerage Phillip Nova in Singapore, referring to the Red Sea.
A “recovery in China is also a matter of concern for oil traders going into 2024”.
Chinese shares dragged down Asian equities on the first trading day of the year following weaker-than-expected factory data and a speech from President Xi Jinping that flagged the headwinds facing the economy.
The prospect of slowing global economic growth and growing concerns of rising supply especially from producers outside the Organisation of the Petroleum Exporting Countries caused Brent and WTI to fall more than 10 per cent in 2023 to close out the year at their lowest year-end levels since 2020.
The latest cuts from Opec and its allies, or Opec+, will take effect in this quarter, which could then be extended further.
Traders have generally been wary of the Nov 30 pledge from Opec+ to slash production further, remaining sceptical of its implementation.
Brent crude would average US$82.56 a barrel in 2024, a Reuters poll showed on Dec 29, as analysts predicted weak global growth would cap demand, while geopolitical tensions could provide support.
Brent averaged US$82.17 in 2023. REUTERS, BLOOMBERG
