Energy
Wednesday, December 20th, 2023 5:21 pm EDT
Key Points
- Oil Price Increase: Oil prices rose due to heightened attacks by Iran-backed Houthi militants, disrupting international shipping routes. The West Texas Intermediate (WTI) contract for January increased by 1.34% to $73.44 a barrel, and the Brent contract for February gained 1.64%, settling at $79.23 a barrel.
- Houthi Attacks Impacting Shipping: Yemen’s Houthi rebels launched drone attacks in the Red Sea, leading major shipping lines and oil transporters, including Maersk, Hapag Lloyd, MSC, CMA CGM, and Evergreen, to divert scheduled journeys. Oil giant BP also suspended shipping through the Suez Canal due to “deteriorating security” in the Red Sea.
- Market Reaction and Global Impact: NewEdge Wealth’s Senior Portfolio Manager, Ben Emons, highlighted the energy markets pricing in the disruption of global daily oil demand, with 9% flowing through the Suez Canal. Brent, in particular, is sensitive to these disruptions. The spillover effects on commodities like coffee, soybeans, nickel, and palm oil are anticipated, as approximately 12% of non-oil commodities’ trade flows through the Suez Canal. Despite disruptions, Goldman Sachs expects the overall impact on crude oil and LNG prices to be limited.
Oil prices experienced an uptick on Tuesday as tensions escalated in the Red Sea, leading to a decline in tanker traffic due to increased attacks by Iran-backed Houthi militants. The West Texas Intermediate (WTI) contract for January rose by 1.34%, settling at $73.44 a barrel, while the Brent contract for February gained 1.64%, closing at $79.23 a barrel.
The recent surge in conflict involves Yemen’s Houthi rebels launching drone attacks against commercial ships navigating the Red Sea. This series of attacks prompted major shipping lines and oil transporters, including Maersk, Hapag Lloyd, Mediterranean Shipping Company (MSC), CMA CGM, Evergreen, and oil giant BP, to suspend travel through the Red Sea. The decision was influenced by over a dozen vessel attacks since the beginning of the Israel-Hamas war in early October.
Concerns over disruptions to global daily oil demand, particularly the 9% that flows through the Suez Canal, have led to the energy markets pricing in potential impacts. Senior Portfolio Manager Ben Emons from NewEdge Wealth emphasized the sensitivity of Brent to such disruptions. The consequences are expected to extend beyond oil markets, affecting commodities like coffee, soybeans, nickel, and palm oil, as approximately 12% of non-oil commodities’ trade flows through the Suez Canal.
Goldman Sachs, however, anticipates a limited overall impact, stating that the vessel redirection opportunities should prevent direct effects on crude oil and liquefied natural gas (LNG) prices. Analysts from the investment bank emphasized that the disruption is unlikely to significantly affect production.
In response to the heightened threats in the region, the U.S. has pledged to lead an international effort to address the situation. Operation Prosperity Guardian, the new security initiative, aims to deter further Houthi attacks. The multinational maritime force in the Red Sea is being expanded, with participating nations including Bahrain, Britain, Canada, France, Italy, Netherlands, Norway, Seychelles, and Spain. This initiative reflects efforts to safeguard against potential flare-ups of regional conflict amid the ongoing Israel-Hamas war.
The Chairman and Managing Director of the Suez Canal Authority, Ossama Rabiee, provided an update on vessel rerouting, stating that 55 vessels had chosen the longer journey around the south of Africa through the Cape of Good Hope since November 19, while 2,128 vessels had passed through the Suez Canal.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/19/oil-prices-mixed-maersk-msc-suspend-red-sea-route-amid-houthi-attacks.html
