Oil futures rose on Tuesday as tensions heightened and fears of crude supply disruptions increased due to attacks on shipping by Iran-backed Houthi rebels in Yemen. The rise in oil prices was triggered by the entrance of an Iranian warship into the Red Sea.
Price Action
- West Texas Intermediate crude for February delivery rose $1.71, or 2.4%, to $73.36 a barrel on the New York Mercantile Exchange.
- March Brent crude, the global benchmark, was up $1.86, or 2.4%, at $78.90 a barrel on ICE Futures Europe.
- February gasoline rose 2.4% to $2.156 a gallon, while February heating oil was up 2% at $2.58 a gallon.
- February natural gas rose 4% to $2.615 per million British thermal units.
Market Drivers
News reports confirmed that Iran’s Alborz warship had entered the Red Sea; however, details of the ship’s mission were not provided. In response to an attack by Houthi rebels on a cargo ship in the Red Sea, the U.S. military opened fire, resulting in casualties and the destruction of three boats.
Oil prices initially rose when the Israel-Hamas war began in October, but the risk premium associated with fears of a broader conflict in the region soon diminished. Throughout the fourth quarter, both Brent and WTI experienced a significant decline, ending the year with losses for the first time since 2020. Factors such as uncertainty in the demand outlook, record levels of U.S. crude production surpassing 13 million barrels a day, and doubts regarding the unity of OPEC have undermined support for crude.
According to Charalampos Pissouros, a senior investment analyst at XM, “With demand expected to remain subdued due to a global economic slowdown and U.S. crude production at record levels, the recovery may be destined to remain limited and short-lived.”
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