Oil prices saw a modest increase on Monday, with market attention drawn to potential supply disruption risks in the Middle East. The rise comes in the wake of U.S. and British forces’ strikes aimed at thwarting Houthi militia attacks on ships in the Red Sea.
As of 0405 GMT, Brent crude futures showed a 0.2% uptick, rising by 13 cents to reach $78.42 per barrel, following a 1.1% gain on Friday. Concurrently, U.S. West Texas Intermediate crude marked a 0.1% increase, adding 5 cents to reach $72.73 a barrel, building on a nearly 1% gain in the previous session.
Last week, both benchmarks surged over 2%, reaching their highest intraday levels for the year. The spike followed extensive air strikes by U.S. and British forces against Houthi forces, a response to their months-long attacks on Red Sea shipping, which they attributed to the conflict in Gaza.
Warren Patterson, Head of Commodities Research at ING, highlighted potential supply risks in the Red Sea due to the heightened tensions but noted no immediate impact on oil supply. Patterson suggested that a significant escalation would be required for such an impact to materialize.
Over the weekend, Houthi militia issued a threat of a “strong and effective response” after another U.S. strike. President Joe Biden acknowledged sending a private message to Iran regarding the Houthi attacks, further heightening geopolitical tensions in the region.
While the Middle East conflict has not yet affected oil production, traders remain vigilant for Iran’s response and its potential impact on shipments through the Strait of Hormuz, a critical oil chokepoint.
Goldman Sachs analysts commented on the geopolitical risk premium, stating that it appears modest based on the implied volatility of options. However, they added that in the unlikely event of a Strait of Hormuz interruption, oil prices could rise significantly.
In Libya, protests against perceived corruption threatened to shut down more oil and gas facilities, following the closure of the 300,000 barrel-per-day Sharara field earlier this month.
Meanwhile, in the U.S., power and natural gas companies prepared for extreme cold over the Martin Luther King Day holiday weekend, anticipating record gas demand and freezing wells impacting supplies. The Texas power grid operator issued an appeal for energy conservation in light of the challenging weather conditions.