(Bloomberg) — Oil was steady as continued Houthi attacks on ships in the Red Sea that are keeping tensions high in the Middle East were offset by a shaky global economic outlook.
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Brent crude held above $78 a barrel losing 0.2% on Monday, while West Texas Intermediate traded below $73. The Iranian-backed Yemeni militants hit a US-owned commercial vessel with an anti-ship ballistic missile on Monday, underscoring warnings from militaries and trade groups that the waterway remains too risky for navigation.
Despite the jump in tensions across a region that supplies a third of the world’s crude, futures face downward pressure from wider financial markets. European Central Bank officials signaled that it may be too soon to lower rates this year given lingering inflation and geopolitical risks. The US dollar rose on Tuesday, making commodities more expensive for overseas buyers.
“Crude’s continued disregard to the latest spurt in Middle East tensions does seem a bit surprising,” said Vandana Hari, founder of Vanda Insights in Singapore. “It’s an indication of the extent to which the view on global oil fundamentals has turned bleaker.”
The Oct. 7 attack by Hamas and Israel assault on Gaza saw a war-risk premium being built into the crude price, but this was short-lived with prices retreating again after a couple of weeks. The US-led attack on Houthi targets late last week, in retaliation for continued attacks on vessels in the Red Sea, has now ratcheted up the tension again. The main risk is that Iran gets drawn directly into the conflict, but oil markets seem to be discouting that possibility at this point.
More oil and gas tankers are now being diverted away from the troubled Red Sea route, with some companies and producers having said they’d avoid the area. Among the latest, Qatar appears to sending liquefied natural gas vessels to Europe via the longer route around Africa.
While no output has been lost, the tanker diversions are “indirectly tightening the market by forcing oil stocks on water” to pile up, Citigroup Inc. said in a note. Still, “it is not our base case that US/UK strikes on Houthi targets in Yemen and issues in the Red Sea will lead to a substantive upside in oil prices,” the bank said.
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