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Oil prices were steady on Wednesday as the announcement of a coalition to protect ships from Houthi attacks calmed investors.
Brent, the global benchmark for two thirds of the world's oil, was trading 0.15 per cent higher at $79.35 a barrel at 11.47am UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.32 per cent at $74.18 a barrel.
On Tuesday, Brent settled 1.64 per cent higher at $79.23 a barrel. WTI closed up 1.34 per cent at $73.44.
Several countries, led by the US, agreed on Monday to jointly carry out patrols in the southern Red Sea and Gulf of Aden to safeguard commercial shipping after many companies decided to halt their operations in the region.
Some of the world’s largest shipping companies suspended their operations in the Red Sea after attacks by Yemeni Houthi rebels.
The Bab Al Mandeb, situated at the southern edge of the Red Sea and the western part of the Gulf of Aden, serves as a vital route for oil tankers and vessels travelling between the Arabian Gulf and Asia, as well to Europe by way of the Suez Canal.
About 12 per cent of the seaborne oil trade and 8 per cent of liquefied natural gas pass through the strait.
The Red Sea attacks may raise short-term supply risks as ships have to sail around Africa, "which will add thousands of miles to their voyages, thereby delaying cargo deliveries", said Ole Hansen, head of commodity strategy at Saxo Bank.
“[But], the risk of a lasting impact seems limited at this stage,” he added.
Meanwhile, the US bought 2.1 million barrels of crude oil to help refill its emergency stockpiles after the largest sale on record in 2022, Reuters reported, citing the Energy Department.
The department said it bought the oil, for delivery in February, for an average of $74.23 a barrel, below the average of $95 a barrel that oil sold for in 2022.
Oil recorded a small gain last week after the US Federal Reserve signalled it was probably finished raising interest rates after opting to leave them unchanged in the year’s last policy meeting.
The central bank also hinted at rate cuts next year amid easing inflation.
Lower interest rates encourage more spending and investment in an economy, resulting in higher crude demand.
Brent is down by more than 4 per cent since Opec+ announced voluntary output cuts of 2.2 million barrels per day on November 30.
Traders are concerned about compliance among the group’s members to the latest supply reduction.
“In prior agreements, members that exceeded their target levels would have to compensate by deeper subsequent cuts,” Emirates NBD said in a research note this week.
“These voluntary cuts have no such enforcement mechanism. The lack of a wider Opec+ deal suggests that there is some dissent among members about seemingly having to perpetually adjust output lower,” the Dubai-based lender said.
