Oil prices volatile after the attack on the tanker

Oil prices were volatile on Thursday, plummeting, with WTI price climbing above $73.5 per barrel in early trading and then dropping below $71.0 per barrel later in the day. If WTI price declines, it may encounter support near $69.1 per barrel, while resistance may be found near $76.0 per barrel.

A Marshall-Islands-flagged oil tanker was boarded on Thursday by an armed group in Oman, with reports suggesting that Iran had claimed responsibility for the attack. The incident raised the prospect of escalating conflict in the Middle East causing volatility in oil prices.

US crude oil inventories released on Wednesday showed a larger-than-expected build in US stockpiles, putting pressure on oil prices. The US Energy Information Administration reported a rise in US oil inventories by 1.3M barrels for the week to January 5th, exceeding expectations of a drop by 0.2M barrels, following a large drop of 5.5M barrels the week before.

Supply concerns boost oil prices as the crisis in the Gaza area threatens to disrupt oil distribution. Geopolitical tensions are rising in the Red Sea, spilling over the region from the war in Gaza. Tensions around the Red Sea area have been rising in the past few weeks, raising concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. 

Reports that Chinese shipping company Cosco has suspended shipping via the Red have provided support for oil prices earlier in the week, following the announcement of Danish shipping company Maersk that it would not be using Red Sea shipping routes for the foreseeable future.

Iran-backed Houthi militants are attacking commercial vessels in the Red Sea. Iran has refused to withdraw its support from the Houthi militants and has even sent a warship to the trading route. Most oil companies, however, are resuming transit through the Red Sea despite the attacks, easing supply concerns.

Reports that Saudi Arabia has lowered its official selling price for February shipments destined for Asia put pressure on oil prices on Monday. China’s poor economic outlook is increasing concerns of reduced oil demand, pushing oil prices down despite increasing geopolitical risks.

OPEC+ producers recently agreed to voluntary cuts of over 2 million barrels per day to boost oil prices, extending already existing output cuts into the first quarter of 2024 and adding even more. 

Oil prices are kept in check by a strong US dollar and high-interest rates. Most major central banks, however, are hitting pause on rate hikes, boosting oil prices. The Fed kept interest rates unchanged at its December meeting, within a target range of 5.25% to 5.50%. 

The Fed’s forward guidance was more dovish than expected, hinting that the central bank is preparing to pivot to a less restrictive monetary policy. Market expectations of future rate cuts increase oil demand outlook, boosting oil prices. 

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Written by:
Myrsini Giannouli

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