Oil futures fell on Tuesday to end the first trading session of the new year lower, giving up the sharp gains seen in early morning after an Iranian warship entered the Red Sea — heightening tensions and fears of potential crude-supply disruptions caused by attacks on shipping vessels by Iran-backed Houthi rebels in Yemen.
Price action
-
West Texas Intermediate crude for February delivery
CL00,
+3.82% CL.1,
+3.82% CLG24,
+3.82%
lost $1.27, or 1.8%, to settle at $70.38 a barrel on the New York Mercantile Exchange, after trading as high as $73.64 in the morning. That was the lowest settle value since Dec. 13, according to Dow Jones Market Data. -
March Brent crude
BRN00,
+0.38% BRNH24,
+0.38% ,
the global benchmark, fell $1.15, or 1.5%, to end at $75.89 a barrel on ICE Futures Europe, after setting a session high at $79.06. That was also the lowest settlement since Dec. 13. -
February gasoline
RBG24,
+3.25%
dropped 0.5% to end at $2.0949 a gallon, while February heating oil
HOG24,
+3.37%
was off 0.1% to finish at $2.5258 per gallon. -
February natural gas
NGG24,
+4.32%
rose 2.2% to settle at $2.5680 per million British thermal units.
Market drivers
Oil prices were up more than 2% on Tuesday morning before giving back some gains due to escalating tensions in the Red Sea.
News reports said on Monday that an Iranian warship had entered the Red Sea. The reports cited Iran’s semiofficial Tasnim news agency, which didn’t provide details of the ship’s mission.
The U.S. military said Sunday that its forces opened fire on Houthi rebels after they attacked a Maersk-operated cargo ship in the Red Sea, killing several rebels and destroying three boats in an escalation of the maritime conflict linked to the war in Gaza. Danish shipping giant Maersk
MAERSK.A,
MAERSK.B,
said on Tuesday that it would pause all transit through the Red Sea and the Gulf of Aden until further notice.
Oil prices rose after the start of the Israel-Hamas war in October, but the risk premium attached to fears of a wider conflict in the region soon evaporated. Crude has seen periodic price jumps sparked by fears of potential escalation but still fell sharply over the course of the fourth quarter, with both Brent and WTI ending 2023 with a yearly loss, their first since 2020.
Focus will now shift back to the demand side and whether central banks can deliver the soft landing they’ve aimed for while hiking interest rates aggressively, said Craig Erlam, senior market analyst at OANDA.
“Any outperformance for the global economy would ease the burden on OPEC+ at a time when compliance with quotas looks like it’s going to be a struggle,” Erlam wrote in emailed commentary on Tuesday.
However, uncertainty over the demand outlook, a rise in U.S. production to record levels above 13 million barrels a day, and doubts about the unity of the Organization of the Petroleum Exporting Countries (OPEC) have served to undercut support for crude.
With demand “expected to remain subdued due to a global economic slowdown and U.S. crude production at record levels, the recovery may be destined to remain limited and short lived,” said Charalampos Pissouros, senior investment analyst at XM, in a note.
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