Oil Holds Gains as Red Sea Attacks Cause Panic Among Shippers

(Bloomberg) -- Oil traded near its highest close in more than two weeks as more companies shun the Red Sea after a spike in vessel attacks along the key shipping conduit. 

Global benchmark Brent traded near $78 a barrel, after rising 1.8% Monday to its highest close since early-December. West Texas Intermediate held above $72 a barrel. Prices surged on Monday after BP Plc said it would pause all shipments through the waterway and Equinor ASA said it’s diverting vessels away.

The recent escalation in attacks by Iran-backed Houthi rebels in Yemen is the most tangible sign of disruption to energy flows since the Hamas-Israel war started in October, leading the US to announce a new maritime task force to protect commercial vessels. It has also helped fuel a rebound in oil prices since they slumped to a five-month low last week amid signs of rising production, especially in the US.

Disruptions to major trading conduits tend to be short term, and it’s likely the US will take firmer military actions to counter these tensions, said John Driscoll, director and founder of Singapore-based consultants JTD Energy Services Pte Ltd. “The broader concerns are if Houthi bombings and the blockade will escalate tensions in the Mideast and whether Iran jumps into the fray,” he said.

About 8% of the world’s crude transits through Suez, putting pressure on tanker utilization if ships are forced to take the longer route around South Africa, Jefferies analysts said in a note. 

Crude had gained as much as 3.9% earlier Monday before paring advances, indicating the price effect may be short-lived. 

The disruption probably won’t have a big impact on futures as it’s unlikely to directly affect production, Goldman Sachs Group Inc. said in a note. That comes after the bank on Sunday lowered its Brent crude forecasts for 2024, citing expectations for robust US production and modest demand growth.

Brent has fallen about 20% from its high in September and is set for its first annual decline since 2020. Timespreads are continuing to indicate weakness, with the two nearest contracts at 13 cents in contango, compared with 2 cents a month ago. 

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