Price of Oil Soars following Red Sea Fuel Tanker Attack by Houthis, Market Expected to Reassess the Danger

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Oil Prices Soar Amid Global Supply Concerns

Global oil prices saw an upswing of 1% on Monday due to concerns over fuel supplies. This came in the wake of an attack on a fuel tanker operated by Trafigura in the Red Sea and the predicted downturn in Russian oil exports due to the repairing of damaged refineries following drone attacks. These issues have stirred apprehension about sustaining the regular supply of oil globally.

Impact on Brent Crude and U.S. West Texas Oil

Brent crude futures experienced a rise of 83 cents, settling at $84.38 a barrel by 2341 GMT, after reaching a high of $84.80 in the session. In the U.S., West Texas Intermediate crude saw a 78 cents rise, leveling off at $78.79 a barrel.

Trafigura’s Stance Post-Attack

Trafigura, an internationally acknowledged commodities trader, stated they were evaluating the security risks of making additional voyages across the Red Sea. This comes after they managed to extinguish a fire on one of their oil tankers, which was attacked by Yemen’s Houthi group.

ANZ analysts disclosed in a note, “Disruptions to supply have been limited, but that changed on Friday after an oil tanker operating on behalf of Trafigura was hit by a missile off the coast of Yemen.” They believe an attack on oil tankers tied to the U.S. and UK prompts the market to reassess the risk of further disturbances.

Contracts and Demand

Last week saw both contracts climbing for the second consecutive week, settling at almost their highest levels in two months on Friday. This rise was backed by Middle Eastern and Russian supply concerns. U.S. economic blossoming and indications of Chinese fiscal stimulus have boosted the demand expectations.

Disruptions due to fires have forced Russia to potentially reduce exports of naphtha, a significant petrochemical feedstock. The fall is estimated to be between 127,500 – 136,000 barrels per day, nearly a third of its total exports. This deduction is based on reports from traders and ship-tracking data from LSEG.

OPEC Decisions Pending

On February 1st, the Organization of the Petroleum Exporting Countries (OPEC) would congregated online along with its allies, led by Russia. Despite the forthcoming meeting, OPEC will likely decide its oil production levels for April and further into 2022 only in the upcoming weeks, as revealed by our OPEC sources.

Considering the meeting falls early in the calendar, it might not yield any significant changes to the output policy. However, heightened concerns about oil production disruptions globally are expected to influence the discussions significantly.

Anna Parker

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