Oil prices stabilized amid the ongoing tensions in the Middle East, where the risk of US-led airstrikes against the Houthis raised concerns about potential disruptions in crude oil flows. Brent crude hovered below $79 per barrel, while West Texas Intermediate neared $73. Following initial strikes in Yemen, the US conducted a fresh attack on a radar installation and intercepted a Houthi cruise missile on Sunday. Although the global benchmark saw a more than 4% increase on Friday, it closed with a modest gain of 1.1%.
The focus on the Middle East intensified since the October 7 Hamas attack on Israel. Retaliatory strikes on the Houthis aimed to counter their interference with Red Sea ships in recent months. The Iran-backed group pledged to persist until Israel ceases its Gaza Strip assault.
Market reactions suggest a current perception of a low likelihood of the conflict escalating to jeopardize oil production and flow from the broader Middle East, which contributes about one-third of global oil. Instead, concerns about increased supply from non-OPEC countries and a slowdown in demand growth take precedence. Monday’s trading volumes are expected to be lower due to a US holiday.
The crude oil outlook for the year faces challenges. While demand is still growing, the pace is anticipated to slow as the post-pandemic rebound fades. Uncertainty looms over whether production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allies can counter an impending surplus.
Nevertheless, heightened tensions in the Middle East are already causing disruptions in crude flows. Three oil tanker owners, overseeing more than 350 vessels, announced a pause in voyages through the southern Red Sea. Additional disruptions are anticipated as Western military forces advise all ships to avoid the area.
Notably, a vessel transporting Russian oil narrowly avoided a missile fired from Yemen, according to the UK navy. A Houthi-operated TV channel reported new fighter jet strikes on Sunday evening, although there was no immediate confirmation from the US or UK militaries.
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