Oil steadies as Red Sea risks weigh against record US output

Oil was stable after three days of gains as traders weigh surging US production against the ongoing threats of Houthi attacks on ships in one of the world’s most important waterways.

Global benchmark Brent futures pared a decline of as much as 0.9% to trade near $80 a barrel, while West Texas Intermediate was near $74. Government data on Wednesday showed US crude output hit a new record high of 13.3 million barrels a day last week. Meanwhile, the Iran-backed militant group warned it would retaliate if the US carries out attacks on its bases in Yemen.

Crude has rallied this week as the escalation of the Red Sea attacks prompted shippers to divert vessels away from the major energy chokepoint. It is still set for its first annual decline since 2020, with investors unconvinced that OPEC+ will be able to tighten the market next quarter despite the group’s decision to prolong their supply curbs. That comes as production increases from nations outside the cartel, including the US, Guyana and Brazil.

“It’s a market with a lot of tensions and in particular, supply tensions,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. “You have the Rea Sea but you also have record US production and signs of OPEC losing grip on quota discipline.”

While the US is mulling military action against the Houthis, Washington would prefer a diplomatic solution and is working with western and Arab allies to bolster a maritime protection force. Almost 12% of global trade goes through the Red Sea and more than 100 container ships are currently taking the long route around Africa due to the fear of attacks.

Meanwhile, the US consolidated its position as the world’s largest oil producer. Daily output increased by 200,000 barrels last week to the highest in data going back to 1983, according to the Energy Information Administration. Nationwide crude stockpiles also gained for the first time in three weeks.

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