March 2, 2024
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OIL & GAS

Red Sea Attack: Oil Extends Weekly Gains by 1% as Tension Persists

Oil prices rose as much as 1% on Friday as tensions persisted in the Middle East following Houthi attacks on ships in the Red Sea.

However, Angola’s decision to leave OPEC raised questions over the group’s effectiveness in supporting prices.

Brent crude futures were up 86 cents, or 1.1%, to $80.25 a barrel by 0409 GMT, while U.S. West Texas Intermediate crude futures were up 81 cents, or 1.1%, at $74.70 a barrel.

Reuters reports that both the contracts are also up over 4% for a second consecutive week, as concern over shipping in the Red Sea buoyed prices.

Oil prices could see a rebound “due to the geopolitical conflicts and the imminent implementation of OPEC’s production cuts,” said Leon Li, an analyst at CMC Markets in Shanghai.

“So a small supply gap is likely to occur in January next year, and WTI crude oil may rise to $75-$80 per barrel.”

More maritime carriers are avoiding the Red Sea due to vessel attacks carried out in support of Palestinians by Yemeni Houthi militant group, causing global trade disruptions through the Suez Canal, which handles about 12% of worldwide trade.

Germany’s Hapag-Lloyd and Hong Kong’s OOCL were the latest companies to say they would avoid the Red Sea by rerouting ships or suspending sailing.

The U.S. on Tuesday launched a multinational operation to safeguard commerce in the Red Sea, but the Houthis said they would continue to carry on attacks.

Analysts say the impact on oil supply so far has been limited, as the bulk of Middle East crude is exported via the Strait of Hormuz.

Capping further gains though, Angola’s oil minister said on Thursday that the country’s membership in the Organization of the Petroleum Exporting Countries was not serving its interests. Angola had previously protested a decision by the wider OPEC+ group to reduce the country’s oil output quota for 2024.

The Saudi-led producer group in recent months has been rallying support to deepen output cuts and boost oil prices.

Saudi Arabia, Russia and other members of OPEC+, who pump more than 40% of the world’s oil, agreed to voluntary output cuts totalling about 2.2 million barrels per day (bpd) for the first quarter of 2024.

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