Oil rally pauses as Red Sea shipping risks plague global trade

Oil was little changed after two days of gains, as traders and shippers braced for the prospect of more disruption in the Red Sea.

Global benchmark Brent held near $79 a barrel after rising more than 3% in the previous two sessions. West Texas Intermediate was steady near $74. The US and its allies are considering possible military strikes against Iran-backed Houthi rebels in Yemen in recognition that a previously announced task force may not be enough to eliminate the threat to shipping in the vital waterway.

The escalated geopolitical risks have introduced a premium to an oil market plagued by skepticism about OPEC+ adhering to production cuts and concerns of increased supply from outside the cartel, especially from the US. Crude has dropped almost a fifth since late September on the prospect of a glut, and as the regional fallout from the Israel-Hamas war remained contained.

While the rising tension in the Red Sea hasn’t significantly changed the outlook for oil, it could signal a potential escalation of the conflict, which could have significant implications, said Daniel Hynes, a senior commodities strategist at ANZ Group Holdings. “It’s a high risk that the market needs to take into consideration,” he said in a Bloomberg TV interview.

The Red Sea is a vital trade conduit for oil, and has gained importance for barrels from Russia en route to Asia after European buyers shunned them because of the invasion of Ukraine. Russia’s seaborne crude exports climbed again on a four-week average basis, despite a dip in weekly flows driven by a brief pause in shipments from the Baltic port of Primorsk.

Timespreads continue to signal that supply is running ahead of demand, with the futures curve for Brent and WTI both in bearish contango — when later contracts trade at premiums to prompt ones — through to the middle of next year.

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