Oil steady as investors eye Red Sea attacks

ANKARA

Oil prices little changed on Wednesday as investors balanced concerns about possible disruptions of Suez Canal trading routes over attacks by the Houthis while an estimated increase of US crude oil inventories limited further price increases, signaling weak demand in the world’s largest oil consuming country.

International benchmark crude Brent traded at $79.32 per barrel at 10.09 a.m. local time (0709 GMT), a 0.11% decrease from the closing price of $79.23 a barrel in the previous trading session on Tuesday.

The American benchmark, West Texas Intermediate (WTI), traded at the same time at $74.09 per barrel, down 0.20% from Tuesday’s close of $73.94 per barrel.

Houthi attacks in Red Sea

Attacks by the Yemeni rebel group Houthis continue to support the upward price movements as the group increased their attacks on commercial vessels passing through the Red Sea, disrupting global maritime trade and forcing the world’s leading global shipping companies to reroute.

Several international companies including Italian and Swiss-owned Mediterranean Shipping Company (MSC), Denmark-based shipper Maersk, German shipper Hapag-Lloyd, and France-based shipper CMA CGM suspended all sailings in the Red Sea after security was compromised.

The Houthi group vowed to continue its attacks on Israeli ships passing through nearby waters in the Red Sea in support of Palestinians as they face Israel's "aggression and siege" in Gaza.

The Suez Canal, the SUMED pipeline, and the Bab el-Mandeb Strait are strategic routes for Persian Gulf oil and natural gas shipments to Europe and North America.

According to the US Energy Information Agency (EIA), total oil shipments via these routes accounted for about 12% of total seaborne-traded oil in the first half of 2023, and liquefied natural gas (LNG) shipments accounted for about 8% of worldwide LNG trade.

US Defense Secretary Lloyd Austin announced on Monday that the US is to establish a task force to escort commercial vessels in the Red Sea after three vessels were attacked by the Houthis in Yemen earlier this month.

Italy said it would also send a warship to the Red Sea amid attacks by the Houthis on commercial vessels.

Experts say if commercial vessels were forced to go around the Cape of Good Hope, it would affect both commodity prices and trade, increasing travel time by up to 14 days.

They also warn that rerouting of tankers may result in extra fuel costs of $1 million for each vessel going through the Cape of Good Hope instead of the Red Sea and the Suez Canal.

Weak demand signals in US

The American Petroleum Institute late Tuesday announced an estimated increase of nearly 939,000 barrels in US crude oil inventories, against the market expectation of a decline of 2.2 million barrels.

Prices may decline if the US Energy Information Administration confirms the stock build when it releases actual data on oil stocks later on Wednesday.