Oil prices rise as Red Sea shipping turmoil continues

New Delhi — Oil prices regained some ground in Asian trade on Wednesday amid concerns over attacks on shipping in the Red Sea and growing expectations that cuts to US interest rates will take longer than thought.

Brent crude futures rose 24c or 0.3% to $82.58 a barrel by 7.21am GMT, while US West Texas Intermediate crude futures (WTI) were up 21c or 0.3% at $77.25.

The Brent and WTI contracts fell 1.5% and 1.4%, respectively, from near three-week highs on Tuesday as the premium for prompt US crude futures to the second-month contract more than doubled to $1.71 a barrel — its widest level in roughly four months.

That encourages energy companies to sell now rather than paying to store product for future months. The premiums slid to 4c a barrel on Wednesday.

“Crude futures prices have become relatively rangebound, and have at least $6-$7 per barrel of risk premium embedded at current levels,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.

She said prices could remain rangebound until the next turning point in the Gaza crisis, whether a de-escalation through a ceasefire or an exacerbation by Israel’s attack in Rafah.

Attacks on vessels in the Red Sea and Bab al-Mandab strait by Yemen’s Iran-aligned Houthis in support of the Palestinians have continued to stoke concern about freight flows through the critical waterway. Drone and missile strikes have hit at least four vessels since Friday.

Washington on Tuesday again vetoed a draft UN Security Council resolution on the Israel-Hamas war, blocking a demand for an immediate humanitarian ceasefire. The US is instead pushing for the Security Council to adopt a resolution tying a ceasefire to the release of Israeli hostages by Hamas.

Meanwhile, Russia, which has pledged output cuts of 500,000 barrels per day (bpd) as part of a package of cuts with Opec+, said on Tuesday that it intended fulfilling its Opec+ quota in February despite a decline in oil refining.

Refinery throughput in Russia has fallen 7% since the start of 2024, the country’s energy minister said on Tuesday, after facilities were damaged by Ukrainian drone attacks.

Concerns that rate cuts by the Federal Reserve could take longer than thought have weighed on the outlook for oil demand. US inflation data last week pushed back expectations for an imminent start to the Fed’s easing cycle, with economists polled by Reuters now forecasting a cut in June.

US crude inventories were seen up last week, while distillates and gasoline stockpiles were seen dropping, a preliminary Reuters poll showed on Tuesday.

Analysts polled by Reuters estimated on average that crude inventories rose by about 4.3-million barrels in the week to Feb. 16. 

Reuters