Oil edges higher after tanker struck by missile in Red Sea

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Oil edges higher after tanker struck by missile in Red Sea

8:10 CAT | 12 Dec 2023

Image: Bloomberg

Oil edged higher as an attack on a tanker in the Red Sea raised fears of disruptions to shipping due to the Israel-Hamas war.

Global benchmark Brent traded above $76 a barrel after a vessel was struck by a missile from Houthi-controlled territory in Yemen, the US military said. The incident is the latest by the Iran-backed militants, who have shown their support for Hamas by launching missiles and drones at ships.

Crude remained close to the lowest level since June, however, as surging production from non-OPEC countries, particularly the US, raised fears of a glut. There’s also scepticism that OPEC+ alliance members will fully adhere to the group’s latest round of voluntary reductions.

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Oil has fallen for the last seven weeks, the longest such run since 2018, and is down by around a fifth since late September. Chinese consumption growth is forecast to slow next year and there’s a chance of a US recession. Citigroup Inc. said OPEC+ will need to extend its output curbs through the whole of next year just to keep prices in a $70 to $80 a barrel range.

“If OPEC+ delivers on its voluntary supply cuts and dents the current build in global oil stockpiles, it would likely see oil prices find some fundamental support,” said Vivek Dhar, an analyst at Commonwealth Bank of Australia. Yet, “the trajectory of global oil demand remains contested too,” he said.

Timespreads continue to signal that supply is running ahead of demand, with the futures curve for Brent and WTI in bearish contango structures — when later contracts trade at premiums to prompt ones — through to the middle of next year. Brent’s six-month spread was 14 cents a barrel in contango, compared with more than $4 in the opposite backwardation pattern for most of October.

Traders will be monitoring several reports due this week. The Energy Information Administration releases its short-term outlook on Tuesday, followed by OPEC a day later and the International Energy Agency on Thursday. The Federal Reserve ’s final rate decision of the year is due Wednesday.

Source: Bloomberg