Red Sea Fears Dominate, Oil Headed For Yearly Loss

Meanwhile, analysts debate Angola OPEC withdrawal: File Image/Pixabay

A return to Red Sea worries proved beneficial to oil prices on Friday ahead of the Christmas holiday weekend, but Angola's exit from the Organization of the Petroleum Exporting Countries (OPEC) ensured that trading remained somewhat range bound.

Brent settled down 32 cents at $79.07 per barrel, while West Texas Intermediate settled down 33 cents at $73.56.

Although daily trading proved to be rudderless over the past few sessions, both benchmarks were on track for close to a 5 percent week-on-week gain due to geopolitical tensions.

The question remained to what extent would trading be influenced by the Houthi militant group vowing to attack vessels navigating the Red Sea in retaliation for Israel's war on Gaza, and one answer was voiced by John Evans, analyst at PVM.

He said, "The longevity of impact on prices is completely dependent on the length of time that shipping companies continue to steer clear of the area; what has exaggerated such impact is the lack of clarity on how, where and when the so-called [U.S.] naval coalition will turn up."

To date, only 30 tankers including oil vessels have entered the Bab al-Mandab Strait at the southern end of the Red Sea, a drop of over 40 percent.

For her part, Tsvetana Paraskova, an analyst at Oilprice.com, speculated that the larger Middle East conflict "could still impact energy markets and supply chains worldwide and drive consumer prices higher, just as the Fed signalled a pivot in the U.S. monetary policy with the potential of three interest rate cuts in 2024." 

As for Angola leaving OPEC, Evans said its decision was predictable but "nonetheless it brings into mind percolating divisions that might beset unity going forward."

Giovanni Staunovo, commodities analyst at UBS, seemed less concerned about the exit, noting  that oil prices had already rebounded from Thursday's dip and that "the impact is minimal as oil production in Angola was on a downward trend over the last years.

"No one expects that the departure of Angola from OPEC is likely to result in more barrels hitting the market, as higher production would first require higher investments."

Meanwhile, Bloomberg on Friday pointed out that crude was headed for its first annual drop since 2020 "as surging production from the U.S. and elsewhere counters efforts by the OPEC+ alliance to shore up the market through output cuts; the outlook for demand is also fragile."