Before almost completely reversing the loss, West Texas Intermediate dropped as much as 2%. European stocks fell ahead of a slew of talks by officials at this week’s World Economic Forum in Davos, as investors searched for signs on interest rates. Extremely severe temperatures in North America caused several locations to lose oil output. Due to a holiday, US equities markets were closed.
Important trade associations said on Monday that the US Navy had notified them that navigation in the Red Sea is still too dangerous, and they encouraged commercial ships to steer clear of the area. The Houthi insurgents’ Monday use of an anti-ship ballistic missile to strike a US-owned commercial vessel served as further evidence of their threats.
In North Dakota, which is home to the Bakken shale deposit, temperatures as low as -22F (-8C) decreased oil output by as much as 425,000 barrels per day. The oil sands of Alberta saw extreme cold as well; previous cold spells there have forced production to halt.
Since the October 7 attack on Israel by Hamas, the Middle East scenario has captured the attention of the world’s oil markets. The Houthis had been harassing ships in the Red Sea for the last few months, thus the bombings were a form of reprisal. The militants, who are supported by Iran, have sworn that they won’t stop until Israel stops its attack on the Gaza Strip.
The price response indicates that the market does not yet believe there is a strong likelihood that the developing war could jeopardise petroleum production and flows from the larger Middle East, which supplies around one-third of the world’s oil. Instead, range-bound prices are being supported by the possibility of increased supply from non-OPEC nations and slower demand growth.
Analysts at Citigroup Inc., including Francesco Martoccia, stated in a note, “It is not our base case that US/UK strikes on Houthi targets in Yemen and issues in the Red Sea will lead to a substantive upside in oil prices over the coming weeks.” However, the market fears that a potential escalation of hostilities between Israel and Iran or Hezbollah might cause supply disruptions.