Red Sea Tensions Propel Oil Prices Upwards, But U.S. Crude Inventories Cast A Shadow

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  • In the ever-fluctuating landscape of global oil markets, escalating hostilities in the Red Sea region have ignited a surge in oil prices.
  • The Iran-aligned Houthis, in their continued attacks near Yemen, introduced “submarine weapons,” intensifying concerns and adding a layer of complexity to an already volatile geopolitical situation.

Escalating Tensions in the Red Sea

Recent reports indicate that the Iran-aligned Houthis are poised to escalate their attacks on ships in the Red Sea and other waters, emphasizing their commitment to supporting Palestinians in the Gaza war. The situation, marked by the introduction of unconventional weaponry, has captured the attention of the oil market, raising fears of potential disruptions to the global oil supply chain.

Market Responds with Price Surge

Amid the heightened tensions, oil prices experienced a notable upswing. Brent crude settled higher, marking a 0.77% increase at $83.67 a barrel, while U.S. West Texas Intermediate crude also saw gains, settling 0.9% higher at $78.61 a barrel. Traders, reacting to the Red Sea developments, contributed to a tightening market, reflecting concerns about potential supply interruptions.

U.S. Crude Inventories Pose Challenges

However, the bullish momentum faced headwinds from an unexpected quarter – U.S. crude inventories. A significant build of 3.5 million barrels, reaching 442.9 million barrels, was reported for the week ending February 16. Contrary to analysts’ expectations, this increase was attributed to refinery maintenance and outages, painting a nuanced picture of the oil market’s current dynamics.

The recent climb in U.S. crude inventories has been linked to outages at major refineries, keeping utilization rates at their lowest in two years. While some refineries are gearing up for a return to full production, the impact on distillate inventories, including diesel and heating oil, has been noticeable. The drawdown of these stockpiles by 4 million barrels, against expectations, further complicates the overall narrative for the oil market.

As tensions persist in the Red Sea, the delicate balance between geopolitical uncertainties and domestic factors continues to shape the trajectory of oil prices, leaving market participants attentive to every development in this intricate dance of global forces.

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Source: Reuters