Oil prices fell as widespread risk-off sentiment dampened concerns about escalating conflict in the Red Sea.
Global benchmark Brent crude oil traded near $76 a barrel after falling 1.5% yesterday, Tuesday, with West Texas Intermediate crude past $70. Traders trimmed their bets on the size of interest rate cuts from major central banks, leading to one of the worst falls ever in stocks and bonds in the first session of the year.
The shift in overall market sentiment weighed on oil, as traders continued to monitor developments in the Middle East. Iran's sending a warship to the Red Sea represents its boldest move to challenge US forces on the main trade route, and could embolden Houthi militants who have disrupted shipping in the waterway in protest against the Israeli invasion of Gaza.
Limited disturbances
Last year, crude oil recorded its first annual decline since 2020, amid concerns that increased production from outside OPEC+ will outpace efforts by the producer group to limit supply amid slowing demand growth. While events in the Red Sea present additional risks and increase time and costs, disruptions to the oil market are unlikely to be significant, according to Neil Beveridge, a senior analyst at Sanford C. Bernstein.
“There is actually no disruption to actual supply in the market due to tensions in the Red Sea,” Beveridge told Bloomberg TV. He added: The markets seem fairly balanced at the beginning of the year, so OPEC has a lot of work to do to support prices at current levels.
The Organization of the Petroleum Exporting Countries and its allies will resume regular oil market monitoring meetings with an online session in the first week of February, according to delegates. The alliance began a new round of production cuts this month, although traders are skeptical about the effectiveness of such a move to avoid a global surplus.
Elsewhere, China has accelerated the release of its oil import quotas for this year, setting huge allocations to private refiners and traders, almost equal to all of last year's allocations. Chinese refiners have been slow to buy spot cargoes in recent months due to a shortage of quotas, while the market waits to see whether that will stimulate buying.
