Oil prices experienced a significant surge, bolstered by escalating tensions in the Middle East and optimistic economic moves by China, the world’s top importer of crude oil.
As the first trading session of 2024 unfolded, Brent crude spearheaded the rally, rising by $1.28 or 1.7% to settle at $78.32 per barrel. While the U.S. West Texas Intermediate crude saw a notable uptick of $1.04, or 1.5% to reach $72.69 per barrel.
The catalyst for this surge can be attributed to a naval clash in the Red Sea, heightening concerns about potential disruptions in the Middle East’s oil supply chain.
On Sunday, U.S. helicopters thwarted an attack by Iran-backed Houthi militants on a Maersk container vessel, sinking three Houthi ships and resulting in the death of 10 militants.
This incident intensified geopolitical risks, further fueling the speculation of the Israel-Gaza conflict expanding into a broader regional confrontation.
“The oil price may be affected by the escalation in the Red Sea over the weekend and the peak demand season during China’s Spring Festival,” commented Leon Li, a CMC Markets analyst based in Shanghai.
He emphasized the potential impact of the recent conflict on crucial waterways for oil transport, such as the Red Sea and the Straits of Hormuz in the Gulf.
The escalation in tensions prompted at least four tankers carrying diesel and jet fuel from the Middle East and India to Europe to divert their routes around Africa, according to ship tracking data.
In addition to the Middle East developments, optimism surrounding China’s economic moves contributed to the surge in oil prices.
Following the revelation that China’s manufacturing activity contracted for the third consecutive month in December, investors anticipated fresh stimulus measures to boost economic growth. Such stimulus measures have the potential to enhance oil demand, providing additional support to prices.
As the Lunar New Year holiday approaches in early February, expectations for increased demand during China’s Spring Festival have further raised hopes for a rebound in oil prices this month.
The confluence of Middle East tensions and China’s economic initiatives has set the stage for a dynamic start to the year in the oil markets, with analysts closely monitoring global developments that could impact the trajectory of crude prices in the coming weeks.