Oil Holds Large Gain as Fresh Red Sea Attack Puts Market on Edge

(Bloomberg) -- Oil held its largest gain in more than a week on rising tensions in the Middle East, with a fresh attack on shipping in the Red Sea prompting vessels to avoid the key shipping route.

Global benchmark Brent traded near $81 a barrel after rising 2.5% on Tuesday, with West Texas Intermediate above $75. The vessel MSC United VIII was attacked while en route to Pakistan from Saudi Arabia, despite the US and a number of other nations forming a maritime task force to deter strikes.

The latest attack by the Yemen-based Houthi militants, together with US strikes on targets in Iraq, are further signs that the Israel-Hamas war still risks expanding into a wider conflict that could destabilize the Middle East. Hamas is designated a terrorist organization by the US and the European Union.

“Persistent conflict in the Red Sea is propelling a rally,” said Priyanka Sachdeva, senior market analyst at brokerage Phillip Nova Pte. “Thin market depth — owing to the holiday season — is adding further to complexities.”

Oil remains on course for the first annual decline since 2020, although the tensions have helped prices to rebound from lows hit earlier this month. There are widespread concerns about a glut next year despite fresh supply curbs from the Organization of Petroleum Exporting Countries and its allies.

Timespreads, meanwhile, have strengthened in recent sessions, with the gap between Brent’s nearest two contracts at 19 cents a barrel in backwardation compared with 4 cents a week ago. The sessions between Christmas and New Year are also likely to see lower volumes, with many traders away.

Other signals are less positive. Both crude benchmarks are facing a so-called death cross, with the 50-day moving average below the 200-day counterpart. Some traders see that pattern as heralding further weakness.

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