Oil prices edge lower after hitting highest level this month as Red Sea tensions intensify

Yemen's Houthis are continuing to carry out attacks on vessels passing through the area

American naval forces shot down several attack drones and missiles targeting vessels in the Red Sea on Tuesday. Photo: US Department of Defense

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Oil prices were steady on Wednesday morning but edged down later in the day after rising more than 2 per cent on Tuesday to their highest level this month, as continuing attacks on ships in the Red Sea led to concerns of disruptions.

Brent, the global benchmark for two thirds of the world's oil, was trading 1.53 per cent lower at $79.83 a barrel at 9.09pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 1.65 per cent at $74.32 a barrel.

On Tuesday, Brent settled 2.5 per cent higher at $81.07 a barrel. WTI closed up 2.7 per cent at $75.57.

Yemen's Houthis have continued to launch attacks on vessels passing through the Red Sea in retaliation for Israel's bombardment of Gaza, with the US Central Command confirming on Tuesday that American naval forces shot down several attack drones and missiles.

They intercepted “12 one-way attack drones, three anti-ship ballistic missiles and two land attack cruise missiles” in the southern Red Sea that were fired over a 10-hour period, Centcom said, blaming the Houthis for the attacks.

The rebel group has developed into a growing threat in the Red Sea, a key global trade corridor.

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 as 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.

Some of the world’s largest shipping companies, including Maersk, CMA CGM and Hapag Lloyd, suspended their operations in the Red Sea after attacks by the Houthis and also announced that they will impose additional surcharges due to longer routes.

Last week, a US-led task force agreed to jointly carry out patrols in the southern Red Sea and Gulf of Aden to safeguard commercial shipping.

Maersk on Monday said it was preparing to resume operations on the Red Sea following the initiative.

Last week, oil prices posted their biggest weekly gain since October due to fears about supply disruptions.

Several factors currently support a bullish market, including the tensions in Suez Canal, the war in the Middle East, Opec restricting production, and central banks preparing to cut rates, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

"Yet the bullish market reaction looks relatively weak given the amplitude of the issues in the region. The rally will likely continue at a gentle speed," she said in a note on Wednesday.

Analysts expect Brent prices in a range of $80 to $85 a barrel in 2024, Russian Deputy Prime Minister Alexander Novak said on Wednesday.

Producers are not targeting any specific price and Russia is sticking to its quotas on oil supply cuts, he added.

On November 30, Opec+ members announced voluntary output cuts of 2.2 million barrels per day for the first quarter of 2024.

Saudi Arabia, the world's largest oil exporter, will keep its voluntary output cut of one million bpd until the end of March.

Russia is expected to deepen its voluntary oil production cut to 500,000 bpd and extend it until the end of the first quarter of next year.

In 2024, oil demand is expected to grow by 2.2 million bpd, supported by improving economic activity in China, Opec said this month.