Oil prices increased in light of ongoing turmoil and geopolitical tensions in the Red Sea. Brent crude futures increased 0.2 percent to $78.42 per barrel today, Monday, following a 1.1 percent increase on Friday. Meanwhile, U.S. West Texas Intermediate crude rose 0.1 percent to $72.73 per barrel after a nearly 1 percent gain in the previous session. Last week, both benchmarks surged over 2 percent, reaching their highest intraday levels this year.
Amidst the geopolitical tensions in the Red Sea, analysts believe there are supply risks for the oil market given the escalation in the Red Sea. However, they emphasized that there had been no immediate impact on the oil supply so far. Following escalations, several ship owners and shipping companies chose to avoid the Red Sea. Meanwhile, some vessels chose to alter their courses. Traders remain vigilant for potential escalations in the region and are assessing the impact on shipments in the vital Strait of Hormuz, the world’s primary oil chokepoint.
On the other hand, Goldman Sachs analysts suggested that the current risk in oil prices appeared modest, given the implied volatility of options. They estimated that oil prices would rise 20 percent in the first month of a Strait of Hormuz interruption. Moreover, they may temporarily double in a less likely extended disruption.
In addition to external pressures, domestic challenges in Libya added to the complexity of global oil dynamics and prices. Protests against perceived corruption threatened to shut down two more oil and gas facilities. This comes following the closure of the 300,000 barrel-per-day Sharara field on January 7.
In the United States, power and natural gas companies prepared for extreme cold over the Martin Luther King Day holiday weekend. The anticipated record gas demand coincided with supply cuts due to freezing wells. To address potential shortages, the Texas power grid operator issued an appeal to the public, urging energy conservation.
As the world grapples with geopolitical tensions and internal challenges, the oil market remains on edge. Traders and industry experts are closely monitoring developments in the Middle East, while simultaneously navigating domestic challenges that could impact the global energy landscape. The coming weeks will likely prove crucial in determining the trajectory of oil prices amidst this complex geopolitical and economic backdrop.
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