Oil edges higher as Red Sea tensions raising crude market risks
More oil and gas tankers are now being diverted away from the Red Sea, with some companies and producers avoiding the route. Among the latest, Qatar appears to be sending liquefied natural gas vessels to Europe via the longer route around Africa
Oil posted narrow gains as the continued Houthi attacks on ships in the Red Sea that are keeping tensions high in the Middle East were offset by a shaky global economic outlook and gains in the dollar.
Global crude benchmark Brent traded just shy of $79 a barrel after edging 0.2% lower Monday, while West Texas Intermediate was little changed near $73. Iran-backed Yemeni militants hit Greek-owned bulk carrier was hit by a missile in the Red Sea on Tuesday.
Shell suspended all of its shipments through the area due to worries of escalation post US, UK strikes. Elsewhere in the region, Iran's Islamic Revolutionary Guard Corps launched missiles at targets in northern Iraq and Syria.
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Despite the jump in tensions across a region that supplies a third of the world's crude, futures face downward pressure from wider financial markets. European Central Bank officials signaled it may be too soon to lower rates this year given lingering inflation and geopolitical risks. The Bloomberg Dollar Spot Index rose Tuesday, making commodities more expensive for overseas buyers.
"Crude's continued disregard to the latest spurt in Middle East tensions does seem a bit surprising," said Vandana Hari, founder of Vanda Insights in Singapore. "It's an indication of the extent to which the view on global oil fundamentals has turned bleaker."
The Israel-Hamas conflict saw a war-risk premium built into crude, but that faded after a couple of weeks. The US-led attack on Houthi targets last week, in retaliation for continued strikes on vessels, has ratcheted up the tension again. The main risk is Iran getting pulled directly into the conflict, but oil markets seem to be discounting that possibility currently.
More oil and gas tankers are now being diverted away from the Red Sea, with some companies and producers avoiding the route. Among the latest, Qatar appears to be sending liquefied natural gas vessels to Europe via the longer route around Africa.
While no output has been lost, the diversions are "indirectly tightening the market by forcing oil stocks on water" to pile up, Citigroup Inc. said in a note. Still, "it is not our base case that US/UK strikes on Houthi targets in Yemen and issues in the Red Sea will lead to a substantive upside."
