Oil prices hit new record as tensions in the Red Sea intensify after US attacks!
Crude oil prices hit their highest levels since March 4 after U.S. military strikes on Yemen's Houthi group in the Red Sea over the weekend. During the early Asian session, West Texas Intermediate (WTI) futures on NYNEX rose as much as 1.5% to $68.19 a barrel and Brent futures on ICE jumped 1.42% to $71.58 a barrel before retreating. Natural gas futures also rose nearly 1% to $4.14 per million British thermal units (MMBtu) during the same time frame.
Moreover, China announced a special plan to boost domestic consumption, along with a slew of positive economic data, adding to demand optimism. China's retail sales rose 4% in the first two months of this year, accelerating from a 3.7% increase in December.
Houthi resumes attacks in the Red Sea
The Red Sea and the Suez Canal are vital routes for oil and gas shipments between Europe, Asia and North America. In late 2023, the Iran-backed Houthi group, designated a Foreign Terrorist Organization by the United States, launched attacks on merchant ships in the Red Sea following Israel’s retaliation against Hamas in Gaza. The Red Sea unrest had previously caused energy shipping costs to rise as oil and gas shipments were forced to take longer routes. Last week, the group said it would resume attacks following a six-week ceasefire in Gaza after Israel halted all humanitarian aid.
On Saturday, US President Donald Trump ordered military strikes on Houthi militia positions in Yemen in response to disruptions to shipping routes. He posted on Truth Social that attacks on US ships would not be tolerated. Pentagon chief Pete Hegseth said US military strikes would be "unrelenting" until the Houthis halted their military attacks, during an interview on Fox News.
Crude oil prices rebound from multi-year lows
Earlier this month, crude oil prices fell to their lowest levels since November 2021 last week on a gloomy economic outlook amid an escalating global trade war. Ceasefire talks aimed at ending the war in Ukraine have also raised concerns about a rebound in Russian production.
In February, China imposed 10% tariffs on crude oil and 15% on liquefied natural gas (LNG) from the US in response to Trump’s tariffs. Last week, Trump followed up with a 10% tariff on Canadian oil. Meanwhile, OPEC+ decided to start increasing its production by 138,000 barrels per day in April. These factors contributed to a decline in crude oil prices, with both benchmarks seeing a sharp drop in Brent by 16% and WTI by 18% since mid-January.
Last week, crude oil prices rebounded from multi-year lows on news that the US would tighten sanctions on Iran. Iran accounts for 24% of the Middle East’s oil reserves and 12% of global reserves, according to the EIA. Its oil exports have surged since 2022, following Russia’s invasion of Ukraine, with current supplies standing at 1.5 million barrels per day, or 1.4% of global output.
Additionally, Russian President Vladimir Putin is demanding changes to the U.S. ceasefire agreement, also dampening hopes for an immediate ceasefire in the war in Ukraine. A weaker U.S. dollar and a potential oversold technical signal may have also supported the rebound.
However, analysts expect the oil price recovery to be limited by economic concerns. “Continued uncertainty over US trade policy and growing concerns about the economic outlook are limiting risk appetite, limiting oil’s gains,” said Dilin Wu, a research analyst at Pepperstone.
Oil supply to exceed demand in 2025
However, the International Energy Agency warned last week that global oil supply could exceed demand by about 600,000 barrels per day in 2025, due to record production in the US and weakening demand amid rising global trade tensions, despite rising demand in China.
U.S. inventory data showed weekly stockpiles rose for six of the seven weeks since mid-January. Crude oil inventories rose by 1.45 million barrels in the week ended March 7, following a 3.6 million-barrel increase the previous week. U.S. crude oil field production hit a near-record 13.58 million barrels per day in early March.
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