Oil prices experienced a 1% decline on Thursday, 28th December as worries over shipping disruptions along the Red Sea route began to subside, despite lingering tensions in the Middle East. Front-month February Brent crude futures dipped by 1.1%, amounting to a 90-cent decrease and settling at $78.75 per barrel around 1141 GMT.
The more active March contract also witnessed a 0.9% decrease, down 69 cents to $78.85 a barrel. Simultaneously, U.S. WTI crude futures traded 1.1% lower at $73.31 a barrel.
The recent drop in oil prices follows a nearly 2% decrease on Wednesday, attributed to major shipping companies, including industry leaders like Maersk and Hapag-Lloyd, resuming their use of the Red Sea route. Denmark’s Maersk, for instance, revealed plans to route almost all container vessels between Asia and Europe through the Suez Canal, easing concerns over disruptions caused by Yemen’s Houthi militant group targeting vessels.
Earlier this month, several shipping giants had halted the use of Red Sea routes and the Suez Canal due to heightened security risks posed by Houthi attacks, causing disruptions in global trade. The decision to resume normal operations signifies a positive shift in the maritime landscape, contributing to the stabilization of oil prices.
However, tensions persist in the Middle East, as a U.S.-led coalition aimed at alleviating Red Sea tensions has not resulted in the anticipated coordinated action. The reluctance of many allies to associate with the maritime force reflects broader geopolitical complexities, exacerbated by the conflict in Gaza. The United States, maintaining firm support for Israel amid rising international criticism over its offensive in Gaza, faces challenges in garnering widespread cooperation.
As these situations take place, Israel has intensified its ground war in Gaza, with Chief of Staff Herzi Halevi stating that the conflict is expected to continue “for many months.” These geopolitical uncertainties contribute to an unpredictable environment for oil markets.
Additionally, the anticipation of interest rate cuts in Europe and the United States in 2024 has introduced a positive outlook for oil demand. Hiroyuki Kikukawa, President of NS Trading, a unit of Nissan Securities, expressed optimism about the market trying the upside again, particularly in the early new year.
Expectations of a recovery in fuel demand, fueled by monetary easing in the U.S. and increased kerosene demand during the winter in the northern hemisphere, further contribute to the complex dynamics influencing oil prices.