Oil prices settle higher as traders monitor Middle East tensions

Oil futures bounced higher Thursday, finding support as traders monitored rising tensions and shipping threats in the Middle East a day after slumping amid a large increase in U.S. crude and fuel inventories.

Price moves

  • West Texas Intermediate crude

    for February delivery


    rose $2.02, or 2.8%, to $73.39 a barrel on the New York Mercantile Exchange.

  • March Brent crude

    the global benchmark, was up $1.78, or 2.3%, at $78.58 a barrel on ICE Futures Europe.

  • February gasoline

    tacked on 3.2% to $2.1341 a gallon, while February heating oil

    added 3.3% to $2.6863 a gallon.

  • Natural gas for February delivery

    traded at $3.051 per million British thermal units, up 0.4%.

Market drivers

“With geopolitical tensions still elevated in the Middle East and OPEC+ continuing to reiterate its commitment to supporting ‘stable’…global
energy prices, there is no reason to suspect that WTI futures will break 2023 support” near $67 in the very near term, analysts wrote in Thursday’s Sevens Report Research newsletter.

Iran-backed Houthi rebels operating out of Yemen earlier this week launched their heaviest barrage yet of missiles and drones aimed at Red Sea shipping.

The attacks, launched in the wake of the start of the Israel-Hamas war in October, have targeted ships in the Red Sea, which links the Mideast and Asia to Europe via the Suez Canal, and its narrow Bab el-Mandeb Strait. That strait is only 18 miles wide at its narrowest point, limiting traffic to two channels for inbound and outbound shipments, according to the U.S. Energy Information Administration. Nearly 10% of all oil traded at sea passes through it. An estimated $1 trillion in goods pass through the strait annually.

The U.S. military said the drones and missiles were downed without causing damage, but the persistent attacks have forced shippers to avoid the waterway. The U.S., meanwhile, is weighing strikes against land-based Houthi targets in Yemen in response to the attacks, The Wall Street Journal has reported.

Houthi rebels in 2019 made significant attacks on energy assets in the United Arab Emirates and Saudi Arabia, both of which were also targeted by Houthi rocket and missile strikes, after the U.S. ended exemptions for importers of Iranian crude and imposed maximum-pressure sanctions, noted Helima Croft, head of global commodity strategy at RBC Capital Markets.

“We could envision a scenario where the Houthis would revive such tactics if the U.S. and its allies directly target their bases in Yemen in response to the escalating maritime confrontations. Red Sea economic infrastructure, including the Jizan and Jeddah refineries, could be at particular risk,” she wrote.

Moreover, if Iran is drawn more directly into the conflict, it could again target tankers in the Strait of Hormuz and sabotage regional energy facilities in order to internationalize the cost of the war, Croft said.

Over in the Gulf of Oman, Iran seized an oil tanker Oman and some are speculating that the move is a retaliation of last year’s U.S. seizure of an Iranian tanker, said StoneX’s Kansas City energy team, led by Alex Hodes, said in a Thursday note.

Read: Oil tanker in Gulf of Oman boarded and seized by men in military uniforms

“This incident is away from the Red Sea but signals that tensions in the Middle East are high,” they said. 

Commodities Corner: What record crude production says about the long road to U.S. oil independence

Oil traders also reacted to U.S. data showing that consumer prices rose 3.4% year over year in December, faster than the 3.1% rise seen in the previous month.

The higher than expected numbers will likely decrease the likelihood the Fed will cut rates at the March meeting, said Robert Yawger, director of energy futures at Mizuho Securities USA, in a daily report.

 A rate cut, however, “would be a positive demand growth event for crude oil — the sooner the better,” he said.

A report from the Energy Information Administration released Wednesday contributed to pressure on oil prices — revealing an unexpected weekly rise in U.S. crude supplies along with hefty gains in gasoline and distillate inventories.

Separately on Thursday, the EIA reported that natural-gas supplies in U.S. storage fell by 140 billion cubic feet for the week ended Jan. 5. On average, analysts surveyed by S&P Global Commodity Insights expected to see a decline of 122 billion cubic feet.

Natural-gas prices moved higher in Thursday dealings, contributing to gains for the week as U.S. winter weather forecasts boost demand prospects for the commodity.

—Associated Press contributed to this article.

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