Oil Drops as Red Sea Fears Are Outweighed by a Risk-Off Attitude

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Oil fell as general risk-off mood subsided worries about the Red Sea dispute being worse.

After a decline in equity markets weighed heavily on commodities, West Texas Intermediate fluctuated in a range of more than $3, before settling close to $70 per barrel. Following the holiday season, volumes have remained low, which has made price changes more severe.

After Iran sent a vessel to the Red Sea, the most recent hotspot in the Middle East conflict, crude prices rose earlier. Everything from container ships to gas carriers have had to reroute due to attacks on merchant shipping in the important transit corridor.

Dennis Kissler, senior vice president at BOK Financial, stated, “The move by Iran of moving the battleship into the Red Sea is more bark than bite, but it will keep crude in a nervous trade.”
Additionally, the markets are monitoring China’s higher crude import quota. China is the world’s largest oil customer. The amount allotted to private refiners and merchants for the purchase of oil nearly mirrored the amount they received for the whole of the previous year, which might improve the outlook for the nation’s consumption.
This quarter, the most recent cuts from the Organization of Petroleum Exporting Countries and its partners will go into force; they may then be extended.

The vow made by OPEC+ on November 30 to significantly reduce output has typically caused traders to exercise caution, as they do not believe it will be carried out.

Prices have been contained ahead of OPEC+’s plans to convene a meeting of its Joint Ministerial Monitoring Committee (JMMC) in early February, due to expectations of plentiful supply in the first half of 2024. There is no set date yet, according to three alliance sources.

“While the geopolitical situation is a concern for the oil market, a fairly comfortable oil balance over the first half of 2024 does help to ease some of these worries,” said ING analysts.

They pointed out that previous cuts have been driven by voluntary reductions rather than group-wide cuts, saying that “given the scale of cuts we are already seeing, it will be increasingly difficult for the group to cut more if needed over the course of 2024.”

Analysts surveyed by Reuters predicted that last week’s crude stockpiles would decline, but distillate and gasoline stocks would probably increase, ahead of the weekly U.S. data on product and crude inventory.

Data from the U.S. Department of Energy’s statistical arm, the Energy Information Administration, is due at 11:00 a.m. (1600 GMT) on Thursday; however, due to the New Year’s holiday on Monday, data from the American Petroleum Institute industry group is due at 4:30 p.m. (2130 GMT) on Wednesday.

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