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Oil Prices Surge as Middle East Tensions Escalate Following Deadly Attacks
Ticker Tea
January 29, 2024
📝 SUMMARY: Recent attacks in the Middle East have notably escalated tensions, leading to a significant increase in oil prices. Iranian-backed militants conducted two separate assaults: a drone strike that killed US troops in Jordan and a missile attack on a fuel tanker in the Red Sea operated for Trafigura Group, carrying Russian fuel. Brent ($BRENT) crude experienced a 1.5% rise in early Asian trading, following a 6% increase last week, the largest since October. West Texas Intermediate ($WTI) also climbed towards $79 per barrel.
The death of American soldiers is expected to intensify demands on President Biden to take a more direct approach against Iran, potentially risking broader conflict in a region pivotal for global oil supply and trade. The attack on the tanker underscores a shift in the targeting strategy of Houthi militants, who had previously focused on vessels linked to Israel, the US, and the UK, now affecting ships associated with Russia and China.
Despite the 9% rise in Brent crude this month due to mounting Middle East tensions, prices remain below the peak reached after the Hamas attack on Israel in October. Factors like potential supply from non-OPEC countries and slowing demand growth are moderating price increases. While the Red Sea attacks have led to rerouted cargoes, increasing freight costs and delivery times, they have not yet resulted in shortages or production impacts.
Analysts, including Michael Tran of RBC Capital Markets, highlight the shift from geopolitical risk to reality, suggesting that oil prices might soon reflect the heightened tensions. President Biden has vowed retaliation for the US troop deaths, and there are calls for strikes on Iran, which the US aims to avoid.
The attacked vessel was transporting Russian-origin naphtha, a product below the price cap set by the G7. Industry experts like John Kilduff from Again Capital LLC emphasize that, despite the heightened tensions, a full-scale war is unlikely, and oil production and Suez Canal shipments remain unaffected.
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