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Oil rose on Tuesday, extending the previous session's gains, after attacks by Yemen's Iran-aligned Houthi militants on ships in the Red Sea disrupted maritime trade and forced companies to reroute vessels.
Brent crude was up 71 cents, or 0.9%, to $78.66 a barrel by 1512 GMT. U.S. West Texas Intermediate crude for January, which expires on Tuesday, was up 88 cents at $73.35 while the more active February contract gained 94 cents to $73.75.
Crude on Monday rose nearly 2% after a Norwegian-owned vessel was attacked and BP said it had paused all transit through the Red Sea, raising concern over supply disruption. About 12% of world shipping traffic passes up the Red Sea and through the Suez Canal.
"Ships are now being re-routed via the Cape of Good Hope, but not only will this add up to 10 days sailing time, it will cost up to $1 million extra in fuel for every round trip between the Far East and North Europe," said Peter Sand, chief analyst at Xeneta.
Though the attacks on shipping have boosted the risk premium, other analysts have noted the incidents said the disruption is not likely to impact supply.
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"The actual effect on oil flows is likely to be limited," said John Evans of oil broker PVM. "The attacks have not hit anything that would interfere with production," he said.
The United States on Tuesday announced the creation of a task force to safeguard Red Sea commerce from attacks by Iran-backed Yemeni militants, which have disrupted maritime trade and forced companies to reroute vessels.
Goldman Sachs analysts said the disruption is unlikely to have a large effect on crude and liquefied natural gas (LNG) prices because opportunities to reroute vessels suggest that production should not be directly affected.
Also in focus this week is the latest snapshot of U.S. supplies. U.S. crude inventories are expected to decline by 2.2 million barrels, a Reuters poll showed.
The first of the week's two supply reports, from the American Petroleum Institute, is due at 2130 GMT.
