HSE & Sustainability

Oil Traders Monitor Rising Tensions in Red Sea

Iran has deployed a warship after the US Navy destroyed three boats of Iran-backed Houthi rebels. Maersk said it will pause shipping through the Red Sea until further notice.

Saudi Arabia air view
Source: 1xpert/Getty Images

Oil prices fell on 2 January as traders monitored rising tensions in the Red Sea amid a backdrop of record US crude production and worries about demand in China.

The West Texas Intermediate contract for February lost $1.27, or 1.77%, to settle at $70.38 a barrel. The Brent contract for March shed $1.15, or 1.49%, to trade at $75.89.

Crude prices had jumped more than 2% earlier in the trading session on escalating tensions in the Red Sea, a crucial global trade chokepoint.

Helima Croft, head of global commodity strategy at RBC Capital Markets, said oil prices do not reflect the increase in tensions because traders are not convinced that a major supply disruption is on the horizon.

“The market is basically saying ‘we will wait and see until something happens,’ ” Croft said. “But it’s really getting much more serious every day,” she said of tensions in the region.

Traders are more focused on the macroeconomic backdrop of record US production and faltering demand in China, said Adi Imsirovic, a veteran oil trader who is now an energy security expert at the Center for Strategic and International Studies.

Danish shipping giant Maersk said on 2 January that it will pause shipping through the Red Sea until further notice after one of its vessels came under attack by militants over the weekend.

And Iran on 1 January deployed a destroyer to the Red Sea, according to the country’s Tansim news agency. The report did not elaborate on the details of the warship’s mission, but said Supreme Leader Ayatollah Ali Khamenei stressed the need to maintain a presence in international waters.

The move by Tehran comes after US Navy helicopters destroyed three boats of Iran-backed Houthi rebels. The Navy was responding to a distress call by Singapore-flagged vessel Maersk Hangzhou, which had come under Houthi fire, the US Central Command said in a statement.

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