Oil held gains after the US and UK made a fresh round of strikes against Iran-backed Houthi rebels in Yemen, fanning tensions in the Middle East and offsetting concerns global supplies remain ample.
Global benchmark Brent was steady above $80 a barrel after rallying almost 2% on Monday, while West Texas Intermediate was below $75. US and UK forces launched their latest attacks against eight Houthi targets in an effort to prevent the group from attacking commercial vessels in the Red Sea.
Crude ended higher in the week’s opening session after reports of Ukrainian drone attacks against energy facilities on Russia’s Baltic coast, opening a new front in the countries’ conflict almost two years after Moscow’s invasion.
Crude has struggled to set a clear direction this year despite the multiple geopolitical tensions and a pledge by the Organization of Petroleum Exporting Countries to rein in production. Oil’s gains have been offset by indications of abundant ex-OPEC output, with the International Energy Agency forecasting ample supply. In addition, Libya restarted flows from its largest field after a halt, and US drillers are recovering from a freeze that hurt operations.
The attack in Russia “is an important reminder that we have ongoing conflict in two important energy-producing regions,” said Robert Rennie, head of commodity & carbon research at Westpac Banking Corp. Oil inventories should tighten further after US production was impacted by severe weather and OPEC+ cuts kick in, although a return of supply from Libya’s Sharara field will help ease some of the tightness, he added.
On Monday, Brent managed to post its first close above the $80-a-barrel level this year. Its prompt timespread — the difference between its two nearest contracts — was 46 cents a barrel in backwardation, a bullish near-term structure. That compares with 3 cents on the first trading day of 2024.
The Houthis have said the attacks on vessels off Yemen’s coasts are intended to support Hamas as it battles Israel in Gaza. Their assaults have sharply reduced transits through the Red Sea and Suez Canal, jacked up shippers’ transport and insurance costs, and raised the specter of wider conflict in the Middle East.