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Oil prices rose on Tuesday, supported by geopolitical tensions in the Middle East and investor optimism regarding potential interest rate cuts by the U.S. Federal Reserve. The anticipation of rate cuts and conflict in the Red Sea have led to a rebound in crude prices. However, Maersk’s announcement of a restart of shipping routes through the waterway has eased supply concerns to some extent, according to CMC Market analyst Leon Li.
Brent crude futures increased by $1.19, or 1.5%, reaching $80.26 a barrel by 1314 GMT, while U.S. West Texas Intermediate crude rose by 94 cents, or 1.3%, to $74.50.
UBS analyst Giovanni Staunovo mentioned that the lack of oil supply disruptions is countering the price support from ongoing geopolitical tensions in the Middle East. He also noted that trade was thin and in a narrow range typical of holiday periods. Additionally, the volume of trading is light due to public holidays in some markets.
Last week, both oil benchmarks saw gains of about 3% as Houthi attacks on ships disrupted global shipping and trade, and the Israel-Hamas conflict continued without signs of easing.
The Red Sea, which connects with the Suez Canal—a major shipping route responsible for approximately 12% of global trade—had faced shipping disruptions. However, shipping companies have resumed sending vessels through the waterway, alleviating concerns. Germany’s Hapag-Lloyd will decide on Wednesday how it will proceed with its Red Sea routes after suspending shipments there.
A British maritime authority reported two explosions in the Red Sea, occurring shortly after the sighting of two unmanned aircraft. Meanwhile, Israel indicated that it had retaliated against attacks carried out against it in Iraq, Yemen, and Iran, as the conflict with Hamas-led Palestinian militants extended to other areas.
In a separate development, the U.N. nuclear watchdog revealed that Iran has reversed a slowdown in uranium enrichment, now enriching up to 60% purity, close to weapons grade.
Oil prices also found support from expectations of future interest rate cuts by the Federal Reserve. Lower interest rates can reduce consumer borrowing costs, stimulating economic growth and increasing oil demand.
The article was first published on Dec 26, 2023, at 7:36 PM IST.
Oil prices have continued to rise as investors closely monitor escalating tensions in the Middle East and anticipate a potential interest rate cut by the US Federal Reserve. The recent attacks on oil tankers in the Gulf of Oman have heightened concerns about supply disruptions in the region, leading to increased oil prices. Moreover, anticipation of a rate cut by the Federal Reserve is adding to market optimism, as lower interest rates tend to stimulate economic growth and boost oil demand. These factors have contributed to the ongoing gains in oil prices, creating a volatile environment for investors and highlighting the potential impact of geopolitical events on global energy markets.
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