Oil Prices React to Heightened US-Houthi Tensions and Global Supply Dynamics

📝 SUMMARY: The global oil market experienced a notable shift as Brent crude ($BZWOO) and West Texas Intermediate ($WTI) prices responded to escalating geopolitical tensions and supply dynamics. The US's intensified military actions against Iran-backed Houthi forces in Yemen and its proxies, alongside retaliatory threats from the Houthis, contributed to the uptick in oil prices. Brent crude saw a rise of up to 1.2%, trading just below $78 per barrel, while WTI hovered under $73. This increase comes after both benchmarks experienced their most significant weekly loss since October last week, with a 7.4% drop.

The recent US military strikes, including actions in Syria and Iraq against Iranian troops and militias, represent the largest offensive against the Houthis since January 11, aimed at curbing attacks on commercial shipping in the Red Sea. Despite these developments, senior US officials have expressed a commitment to avoid a protracted regional conflict.

Another factor influencing oil prices is the strengthening dollar, making crude more expensive for non-US investors. Last week's decline in oil prices was largely attributed to discussions on pausing the Israel-Hamas conflict, with US National Security Advisor Jake Sullivan indicating that an immediate agreement is unlikely. The market's focus is also on the supply side, as OPEC's output remains above its collective limit and the US continues to produce oil at record levels.

Analyst Vivek Dhar of the Commonwealth Bank of Australia suggests that the Israel-Hamas ceasefire talks, rather than the US military strikes, will have a more significant impact on keeping Brent futures under $80 a barrel. This perspective is rooted in concerns about oversupply risks in the upcoming quarters.

In related news, diesel futures spiked following a fire at the Lukoil facility in Volgograd, allegedly caused by a drone from Ukraine. This incident is likely to impact refining capacity, with diesel futures increasing by up to 1.8%.

🔍 SOURCE: https://www.bloomberg.com/news/articles/2024-02-04/latest-oil-market-news-and-analysis-for-feb-5?srnd=markets-vp