Oil prices rose slightly in Asian trade on Tuesday after rebounding sharply from near six-month lows, as traders sought to gauge just how disruptive an ongoing conflict in the Red Sea will be for supplies.
Missile and drone attacks on several vessels in the region- which were attributed to the Yemeni Houthi group- saw several shipping firms say that they will avoid the region, pointing to a much longer route around the Cape of Good Hope to avoid the Suez Canal.
Oil major BP PLC (LON:BP) and oil shipping group Frontline Ltd (NYSE:FRO) said their vessels will avoid the waterway, with several other oil firms echoing their concerns.
The move is set to disrupt crude supplies to Europe and Asia, given that the Suez Canal is a key shipping route between the two continents. Oil shipments from the Middle East are also now expected to take a longer route to Europe and across the Atlantic.
Oil prices rose sharply on Monday following the Red Sea attacks, extending a recent rebound from their weakest levels since late-June. They saw mild strength on Tuesday.
Brent oil futures expiring February rose 0.2% to $78.11 a barrel, while West Texas Intermediate crude futures rose 0.1% to $72.93 a barrel by 20:21 ET (01:21 GMT).
Supply disruptions in focus as Middle East tensions grow
Traders were now watching for any more signs of disruptions in supplies from the oil-rich Middle East region, following an escalation in strikes by the Houthi group over the past month.
The group claimed that the recent attacks- which also included strikes on U.S. Navy vessels, were in retaliation for Israeli strikes against Gaza, following a recent escalation in the Israel-Hamas war.
This saw markets begin once again pricing in a risk premium from the conflict, given that it now stood to potentially disrupt oil supplies from the region.
The U.S. recently vetoed a United Nations resolution for an immediate ceasefire in Gaza, drawing criticism from several countries amid a worsening humanitarian crisis in the region.
The move also threatened to potentially draw in other Middle Eastern powers into the conflict, which could mark a serious escalation.
Russia tightens supplies, but oversupply fears keep oil gains muted
Oil prices were also buoyed by Russia saying that it will deepen its oil export cuts in December by up to 50,000 barrels per day, or more.
The move helped oil extend strong gains from the prior week, which were initially triggered by the Federal Reserve saying it was done raising interest rates.
But oil prices were still nursing steep losses for 2023, as the prospect of oversupplied markets in early-2024 recently pushed prices to near six-month lows.
Underwhelming production cuts by the OPEC+ and strong U.S. production are expected to result in less tight markets in the coming year. Goldman Sachs recently cut its Brent price expectations by $10 to between $70 and $90 a barrel.