Attacks on Red Sea ships boost oil prices

Oil prices edged higher on Tuesday, with WTI price touching the $74.0 per barrel level. If WTI price declines, it may encounter support near $67.6 per barrel, while resistance may be found near $75.0 per barrel.

Supply concerns boosted oil prices this week 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 days, raising concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. Iran-backed Houthi militants attacked commercial vessels in the Red Sea earlier this week. BP and other oil companies announced on Monday that they have paused all transit through the Red Sea.

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

Global economic concerns are dampening the oil demand outlook, however, putting pressure on oil prices. China’s oil demand outlook is decreasing, as the country’s economic growth is disappointing. 

Oil prices are also 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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