Red Sea: Oil Prices Drop as Shipping Disruptions Ease
As worries about shipping delays along the Red Sea route subsided on Thursday, oil prices dropped by nearly 1% despite the ongoing hostilities in the Middle East....
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Facts
- As worries about shipping delays along the Red Sea route subsided on Thursday, oil prices dropped by nearly 1% despite the ongoing hostilities in the Middle East.1
- US WTI (WestTexas Intermediate) oil futures were trading 5 cents lower at $74.06 a barrel, while Brent crude futures increased 10 cents, or 0.1%, to $79.75 a barrel on Thursday.2
- As anxieties about shipping in the Red Sea have subsided, Hiroyuki Kikukawa, president of NS Trading, stated that ongoing concerns about Middle East tensions, 'especially on Iran's involvement in the region, make it difficult to sell further.'3
- Expectations of a resurgence in fuel demand due to monetary easing in the US and increased kerosene demand during the northern hemisphere's winter are anticipated to cause the market to expand in the early part of the new year.1
- Major shipping firms, such as the world's largest container corporations Maersk and Hapag-Lloyd AG, ceased using the Suez Canal and the Red Sea earlier this month due to the disruption of global trade caused by the Iran-backed Houthis in Yemen targeting boats passing through. Concerted action by a US-led coalition has, however, not materialized as of yet.1
- Nonetheless, the likelihood of an extended Israeli military campaign in Gaza and the possibility of the conflict expanding, including increased attacks on ships in the Red Sea, continue to be significant factors influencing market sentiment.4
Sources: 1MSN (a), 2Business Insider, 3Economy Middle East and 4MSN (b).
Narratives
- Pro-establishment narrative, as provided by LSE. President Biden had vowed to keep oil prices down. The administration is prepared to go to whatever lengths necessary to preserve market stability and low oil prices. Washington is dedicated to stabilizing freight transit in the Red Sea corridor, as evidenced by the formation of a task force last week to protect trade in the region. The Red Sea and Suez Canal handle about 12% of all marine traffic worldwide. Oil tankers were temporarily diverted, but the main shipping lines are again returning to the Red Sea route, which is encouraging news for the market.
- Establishment-critical narrative, as provided by Egypt Oil & Gas. The Israel-Palestinian conflict could have far-reaching economic consequences. A protracted conflict between the two sides not only has a substantial humanitarian toll but also threatens to bring about a new global economic shock. Important energy infrastructure, pipelines, refineries, and export terminals could be destroyed in the event of a full-scale conflict in the Middle East. This would send prices worldwide through the roof, which would only exasperate already existing issues with inflation. The world needs an immediate, lasting solution in Gaza to ensure maritime and energy security in the Red Sea and beyond.
