Global oil prices experienced a significant uptick on Monday, driven by escalating concerns over oil supply disruptions in the Red Sea following attacks by Houthi rebels. However, gains were tempered by skepticism surrounding Russia’s plan to cut exports in December.
BP, one of the world’s major energy players, announced on Monday that it has temporarily halted all transits through the Red Sea in response to attacks over the weekend by Houthi forces, who control the majority of Yemen. In tandem with BP’s move, other shipping firms declared their intention to avoid the Suez Canal in light of the heightened security risks. Brent crude futures surged by 62 cents, or 0.8%, reaching $77.17 a barrel by 1150 GMT, while U.S. West Texas Intermediate crude rose by 47 cents, or 0.7%, to $71.90.
The recent attacks have underscored the vulnerability of crucial shipping routes, prompting concerns about potential disruptions to the global oil supply chain. The situation has compelled major industry players to reassess their transit routes and security protocols.
Last week, both crude benchmarks experienced modest gains after seven consecutive weeks of decline. The positive momentum followed a U.S. Federal Reserve meeting that signaled a potential end to interest rate hikes and hinted at forthcoming cuts, boosting market confidence.
The geopolitical risk premium for oil has intensified due to recurrent hostilities in the Red Sea, where Iran-backed Houthi rebels regularly target commercial vessels. This geopolitical uncertainty has played a crucial role in the recent resurgence of oil prices.
Adding to the market’s support, Russia announced on Sunday its intention to deepen oil export cuts in December, potentially by 50,000 barrels per day or more, ahead of schedule. This move, by the world’s largest oil exporters, aims to bolster global oil prices. Moscow’s decision comes in the wake of suspending approximately two-thirds of loadings of its primary export grade, Urals crude, from ports due to adverse weather conditions and scheduled maintenance on Friday.
As oil markets navigate this complex landscape of geopolitical tensions and supply-side uncertainties, investors and industry observers remain vigilant for further developments that could impact the delicate balance between supply and demand in the global oil market.