Oil Declines With Emerging Red Sea Optimism, But Critics Wary Of Circumstances

Meanwhile, U.S. crude inventories continue to build: File Image/Pixabay

Crude traders on Wednesday reversed most of oil's gains in the previous session, due to emerging confidence about the state of affairs in the Red Sea as more shippers use the navigation route despite earlier Houthi attacks.

Brent settled down $1.42 at $79.65 per barrel and West Texas Intermediate settled down $1.46 to $74.11 after Maersk stated it will send several dozen container ships through the Suez Canal and Red Sea in coming weeks.

Maersk added that the journeys would be both eastbound and westbound and protected by a U.S.-led military operation, although detail were not forthcoming.

But despite a slight easing of tension from an investment perspective, Callum Macpherson, head of commodities at Investec, warned that, "We have to wait and see whether the increased naval patrols and rerouting of ships lead to a decline in attacks."

Even more circumspect was Bloomberg, which on Wednesday pointed out that "Both WTI and Brent crude formed a bearish 'death cross' — where the 50-day moving average crosses below the 200-day — for the first time since September 2022….in the past, that pattern has heralded further weakness."

Dennis Kissler, senior vice president for trading at BOK Financial Securities, added in a note to clients,  "As we approach the year end, more of the trade will focus on re-aligning positions on thin trading volume unless of course we see further attacks in the Red Sea area."

In other oil news on Wednesday, the American Petroleum Institute reported a rise in U.S. crude inventories this week of 1.8 million barrels, on the heels of a 939,000-barrel build the week prior.

Data from the institute also showed a net build of U.S. crude inventories of just over 21 million barrels so far this year.

In other news that may influence the oil sector, Russia and Iran reportedly finalized an agreement to trade in their local currencies instead of the U.S dollar; Russia stated it will switch to Chinese and Emriati currencies instead, but Oilprice.com noted that the "relative stability of the dollar compared to many local currencies makes it more attractive as a medium of payment in cross-border trade."