Oil accelerated its rise on Monday, driven by concerns about supply difficulties via the Red Sea trade route, which several maritime carriers have now announced they will no longer use. Around 12:50 GMT (1:50 p.m. in Paris), the price of a barrel of Brent from the North Sea for delivery in February rose 1.24% to $77.50. Its American equivalent, a barrel of West Texas Intermediate (WTI) for delivery in January, gained 1.19% to $72.28.
Several global shipping giants have announced in recent days that their ships will avoid the Red Sea, due to the increase in attacks in this area by Yemen’s Houthi rebels in recent weeks. This was the case on Friday and Saturday for the Danish Maersk, the German Hapag-Lloyd, the French CMA CGM and the Italian-Swiss MSC. On Monday, the British hydrocarbon giant BP announced that it was also suspending all transit in the Red Sea “given the deterioration of the security situation for maritime transport” in the area.
Their decision “underlines the risk for this vital artery for international oil trade,” assure analysts at DNB Markets. “The markets are well aware of the implications in terms of vessel availability and prices,” said Joshua Mahony, analyst at Scope Markets. The Red Sea is a “sea highway” connecting the Mediterranean to the Indian Ocean, and therefore Europe to Asia. Around 20,000 ships pass through the Suez Canal each year, the entry and exit point for ships passing through the Red Sea.
Already last week, the two global oil benchmarks posted a slight gain, driven by speculation about several rate reductions from the Federal Reserve (Fed) next year, which could occur as early as March according to analysts. While the Fed, like other central banks, decided to maintain a status quo on its interest rates last week, its speech deemed more accommodating by investors had weakened the dollar.
The weakness of the greenback in turn boosts purchases of oil, which is more affordable for investors with foreign currencies. However, investor enthusiasm remains tempered by “moderate Chinese demand”, indicates Stephen Innes, analyst at SPI AM.
