On Monday, Brent crude oil, against which Nigerian oil is priced, appreciated by 0.2% to $78.42 a barrel as the uncertainty surrounding the risks in the Red Sea continues.
The recent catalyst for these market jitters stems from coordinated strikes by U.S. and British forces aiming to thwart Houthi militia attacks on ships in the Red Sea.
The Houthi forces backed by Iran have retaliated against perceived injustices, leading to a tit-for-tat escalation.
Commenting on the situation, Warren Patterson, Head of Commodities Research at ING, said “There are supply risks for the market given the escalation in (the) Red Sea.”
However, he cautiously tempers expectations, stating, “for now, we are not seeing any impact on oil supply. And I guess we would need to see significant escalation before that happens.”
The geopolitical chessboard continues to unfold with Houthi threats of a “strong and effective response” after another overnight strike by the United States.
In a complex web of dynamics, the U.S. acknowledged shooting down a missile fired from Houthi militant areas in Yemen.
As tensions rise, several tanker owners have steered clear of the Red Sea, altering courses to avoid potential fallout.
However, the market is keenly watching for Iran’s response and any consequent impact on shipments in the Strait of Hormuz, the world’s vital oil chokepoint.
Goldman Sachs analysts provide context, stating, “While the Middle East conflict is currently not affecting oil production, the geopolitical risk premium priced in oil prices now appears modest.”
They highlight the implied volatility of options, indicating that the current premium doesn’t fully encapsulate the potential risks.
As the oil markets navigate this delicate geopolitical ballet, the world waits, holding its breath for each new move and countermove, acutely aware that geopolitical events have the power to send ripples across the oil landscape.
