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Oil rose in New Year trading after Iran sent a warship into the Red Sea, escalating West Asia tensions, and as the outlook for Chinese crude demand brightened.
Brent crude climbed as much as 2.6 per cent to top $79 a barrel, before paring some of that gains.
The deployment of an Iranian warship comes after the US Navy said it was fired upon when responding to a distress call from a vessel in the Red Sea, the latest flashpoint on the key maritime corridor over the past few weeks. Defence and shipping stocks were also trading higher on Tuesday.
Attacks on merchant shipping in the region have led to diversions of everything from container ships to gas carriers. The most recent impact on for oil came as two crude tankers diverted away from loading in Sudan, though one was replaced by a different vessel.
Still, even as some companies and shipowners stay away, the wider impact on supply has been contained for now. Geopolitics threatens to inject fresh impetus into an oil market that last year fell for the first time since 2020. As 2024 gets underway, there’s been close focus on supply as high output from the US and other producers outside of OPEC and its allies counters the cartel’s output curbs.
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A bumper crude import quota from China, the world’s largest buyer, added to oil’s momentum. Private refiners and traders received an allocation for crude purchasing that nearly matched the one they received for the entire of last year, potentially boosting the outlook for the country’s consumption.
“The latest events in the Red Sea, positive sentiment in European equity markets and the new Chinese import quotas are likely pushing crude higher,” said Giovanni Staunovo, a commodity analyst at UBS Group AG.
The latest cuts from the Organization of Petroleum Exporting Countries and its allies will take effect this quarter, which could then be extended further.
Traders have generally been wary of the November 30 pledge from OPEC+ to slash production further, remaining skeptical of its implementation.
A Houthi delegation met with officials in Tehran after the US response to the attack on a Danish-owned container ship. AP Moller-Maersk A/S has again suspended all Red Sea transit to assess the situation in the vital waterway.
