Oil Prices Rise as Tensions in the Red Sea Increase
Crude futures climbed on Wednesday, marking the first increase in oil prices since the day after Christmas. The rise comes amid escalating tensions in the Red Sea, raising concerns about potential disruptions to oil flow in the Middle East.
Matt Smith, chief analyst for the Americas at Kpler, stated that while concerns over blocked shipping in the Red Sea initially had little impact on oil prices, unrest in Iran – a major oil producer – has pushed prices higher. “Protesters disrupted activities at El Sharara, Libya’s largest oil field, further bullish oil prices,” Smith said.
West Texas Intermediate oil futures for February delivery rose by 3.3% to $72.70 a barrel, while the March Brent crude oil contract on the ICE Futures Europe exchange increased by 3.1% to $78.25 per barrel.
Meanwhile, Iranian state media reported an explosion near a cemetery in Iran, causing casualties during a ceremony commemorating the fourth anniversary of the death of General Qassem Soleimani. The incident comes amid reports of protests leading to the shutdown of Libya’s largest oil field, Sharara.
Despite the increase in hostilities in the region, Denton Cinquegrana, chief oil industry analyst at Dow Jones’ Oil Price Information Service, does not expect significant impacts on oil production. He emphasized that the biggest impact is on the cost and time of shipping rather than the risk of tankers transiting the Red Sea.
Shipping companies suspended shipments through the Red Sea route in December due to attacks by the Iran-backed Houthi rebel group. This has led to longer routes to bypass the affected area, resulting in increased delivery times and transportation costs.
Analysts at Commerzbank noted that the recent events in the Red Sea increased the risk of supply disruptions, contributing to the rise in oil prices. In addition, Iran’s dispatch of a warship to the Red Sea following a U.S. military operation against Houthi vessels has heightened tensions in the region.
Stephen Innes, managing partner of SPI Asset Management, commented on Iran’s actions, stating that they reflect a pattern of propaganda that is not subtle. Analysts at Commerzbank warned that these actions could lead to further restrictions on the crucial maritime oil trade route, potentially driving up oil prices even more.
This article is translated from MarketWatch and is operated by Dow Jones, but MarketWatch is independent from Dow Jones Newswires and The Wall Street Journal.