Tensions in Red Sea Propel Oil Prices to AU$80 Amidst Houthi Attacks and US Strikes

Highlights:

• Tensions in the Red Sea, fueled by Houthi attacks and US strikes, propel global benchmark Brent above $80 a barrel, marking its most significant weekly gain since October.
• Analysts warn of upheaval in energy supply chains as the Red Sea attacks prompt shippers to consider alternative, longer routes, potentially adding 10 days to journey times.
• US strikes in Iraq target Iranian-backed groups, raising concerns about the potential widening of conflicts in the region and contributing to oil market volatility.

Oil Prices Surge

Oil prices experienced a significant upswing, with global benchmark Brent surpassing $80 a barrel, marking its most substantial weekly gain since October, following a series of Houthi attacks on vessels in the Red Sea and US military strikes in Iraq. West Texas Intermediate also rose to $75.

Impact on Energy Supply Chains

Analysts at S&P Global Market Intelligence warned of upheaval in energy supply chains due to the Red Sea attacks. The incidents, attributed to Iranian-backed Houthi rebels, prompted concerns among shippers. While some, like A.P. Moller-Maersk, consider resuming Red Sea routes under a multinational maritime task force, others opt for longer but safer journeys, causing delays in oil cargo deliveries.

US Strikes in Iraq

US strikes in Iraq on Christmas Day targeted an Iranian-based terrorist group accused of attacking American personnel. The move raised concerns about the Israel-Hamas conflict expanding into a broader

regional crisis.

Alternative Routings and Supply Chain Disruptions

The Red Sea attacks are expected to disrupt energy supply chains, with alternative routes compromised either practically or economically. Transits via the Cape of Good Hope could add at least 10 days to journey times, impacting oil deliveries.

Market Dynamics

Despite recent gains, oil faces an approximately 8% loss for the year. Concerns linger over potential oversupply next year, despite OPEC+ pledges of further output cuts. Angola's exit from OPEC highlighted disagreements over quotas, though remaining members emphasized cartel unity.

Market Trends

Timespreads strengthened, with Brent's prompt spread moving to 31 cents a barrel in backwardation, a bullish pricing pattern. The holiday week between Christmas and New Year is anticipated to have low liquidity, with oil's implied volatility declining in recent weeks.

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