Oil up as Red Sea attacks trigger supply fears and Russia hints at further export cuts

By Sibel Morrow

Oil prices rallied on Monday due to naval and commercial ship attacks in the Red Sea that raised fears of possible disruptions to oil supply routes as well as the greater possibility of Russia reducing oil exports earlier than planned.

International benchmark crude Brent traded at $77.31 per barrel at 10.09 a.m. local time (0709 GMT), a 0.99% increase from the closing price of $76.55 a barrel in the previous trading session on Friday.

The American benchmark, West Texas Intermediate (WTI), traded at the same time at $72.50 per barrel, up 1% from Friday’s close of $71.78 per barrel.

After diving to six-month lows last week over uncertainties about the US interest rate decision, prices gained around 1% last week, supported by lower US inventories and sustained risk-on sentiment from the Fed’s dovish pivot.

Prices started the week with a bearish sentiment over growing supply fears following the launch of new attacks by the Iran-backed Houthi group in Yemen on naval and commercial ships in the Red Sea.

The Suez Canal, the SUMED pipeline, and the Bab el-Mandeb Strait are strategic routes for Persian Gulf oil and natural gas shipments to Europe and North America.

According to the US Energy Information Agency (EIA), total oil shipments via these routes accounted for about 12% of total seaborne-traded oil in the first half of 2023, and liquefied natural gas (LNG) shipments accounted for about 8% of worldwide LNG trade.

According to international media reports, the recent attacks led the US administration to consider the launch of an expanded maritime protection force involving Arab states to combat the increasingly frequent Houthi attacks being mounted from Yemen’s ports on commercial shipping in the Red Sea.

Price upticks were also helped after Russian Deputy Prime Minister Alexander Novak said on Sunday that his country may increase oil export cuts by an additional 50,000 bpd or higher in December 2023 on top of the current cuts of 300,000 barrels per day (bpd).

"In December, we will add additional volumes. The figure will be more than $300,000. We will decide based on the results in December. Maybe the additional volume will reach 50,000 barrels. Maybe more," Novak said.

- Stronger dollar increases bearish market sentiment

The strengthening of other currencies against the US dollar further prompted investors to purchase cheaper dollar-indexed crude oil.

The dollar index, which measures the value of the American dollar against a basket of currencies, including the Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc, fell 0.09% to 102.09 on Monday.