Oil prices commenced trading on a lower note this morning, following a 1% increase in the previous session, which was influenced by tanker ships avoiding the Red Sea after attacks by the Houthi rebel group.
On the opening of trading today, Monday (1/15/2024), WTI crude oil prices opened down by 0.07% at $72.63 per barrel, similarly, Brent crude oil prices opened lower by 0.19% at $78.14 per barrel.
During Friday's trading (1/12/2024), WTI crude oil closed up by 0.92% at $72.68 per barrel, and Brent crude oil appreciated by 1.14% to $78.29 per barrel.
The 1% increase in oil prices on Friday was attributed to the growing number of oil tanker ships diverting routes from the Red Sea following overnight air and sea attacks by the US and the UK on Houthi targets in Yemen, in response to attacks on ships by groups supported by Iran.
Although the diversion is expected to increase the cost and time required for oil transportation, oil supply has not yet been affected, according to analysts and industry experts, thus mitigating some of the earlier price hikes.
Last week, Brent fell by 0.5% and WTI by 1.1%. The sharp decline in oil prices was driven by major Saudi Arabian exporters and a surprising increase in US crude oil stocks, sparking concerns about supply.
"While the lack of shipments through the Red Sea does create transportation issues for some crude oil supplies, its impact on the physical oil market," said Matt Stephani, president of investment advisory firm Cavanal Hill Investment Management, as reported by Reuters.
"If the conflict spreads to other areas in the Arabian Peninsula, the oil market may react much more significantly," Stephani added.
Tanker companies Stena Bulk, Hafnia (HAFNI.OL), and Torm (TRMDa.CO) jointly announced that they had decided to suspend all ships heading to the Red Sea.
However, Suez Canal Authority Chief Osama Rabie stated that traffic in both directions remains orderly, and there is no truth to reports that navigation has been suspended due to developments in the Red Sea.
The US and UK airstrikes were carried out in retaliation for Houthi attacks since October on commercial vessels in the Red Sea in support of the Palestinian militant group Hamas in its struggle against Israel.
The escalation of tension has raised concerns that the Israel-Hamas war could escalate into a wider conflict in the Middle East, disrupting oil supplies. Iran seized an oil tanker carrying Iraqi crude oil in the southern strait heading towards Turkey on Thursday.
Houthi militants also mistakenly targeted a Russian oil tanker in a missile attack on Friday off the coast of Yemen, according to the British maritime security company Ambrey.
Tanker diversion around South Africa will also raise transportation tariffs as ships take longer routes. The Red Sea, a major route between Europe and Asia, accounts for about 15% of global shipping traffic.
The US predicts that the Houthis will retaliate as the US and UK attack at 30 different locations in Yemen, according to a senior US military official.
A Houthi spokesperson stated that the group would continue to target shipments to Israel. Iran warned that attacks on the Houthis would trigger "insecurity and instability" in the region, according to Iranian government media.
Saudi Arabia has called for restraint and de-escalation, stating that it is monitoring the situation with deep concern.
Another factor supporting oil prices is China's highest crude oil purchases in 2023 as demand begins to recover from the downturn caused by the pandemic, despite economic obstacles in the world's largest energy-consuming country.
The premium of the first-month Brent contract compared to the six-month contract LCOc1-LCOc7 rose to $2.09 per barrel on Friday, the highest since early November, as a sign that the market is experiencing tighter supply for prompt delivery.
On the supply side, Baker Hughes reported that the number of US oil rigs, which is an indicator of future production, decreased by two to 499 this week.
Meanwhile, in Libya, spokespersons for protesters threatening to close two oil and gas facilities in Tripoli stated that they had decided to extend the deadline for closing facilities on Friday to 24 hours due to negotiations with mediators.