Oil Starts The New Year Down As Analysts Disagree On Red Sea Severity

Meanwhile, Chevron announces a $4 billion impairment: File Image/Pixabay

Oil prices on Tuesday started the New Year the same way they ended the old one, by settling lower due to Red Sea fears continuing to subside and diminishing expectations that interest rates will be cut.

Brent settled down $1.15 at $75.89 per barrel, and West Texas Intermediate settled down $1.27 at $70.38 per barrel.

After news broke that a warship from Iran entered the Red Sea and briefly causes oil to rise,  Andrew Lipow, president of Lipow Oil Associates, said, "The market is correcting itself in so far as there have been no supply disruptions and they think it is unlikely that the Iranian warship will engage with American warships."

Dennis Kissler, senior vice president at BOK Financial, added, "The move by Iran of moving the battleship into the Red Sea is more bark than bite, but it will keep crude in a nervous trade."

Helima Croft, head of global commodity strategy at RBC Capital Markets, disagreed with her colleagues about the conflict: she told CNBC on Tuesday that "The market is basically saying 'we will wait and see until something happens,' but it's really getting much more serious every day."

Indeed, Maersk, which recently disclosed that it would continue suing Red Sea routes, on Tuesday stated that it will pause shipping until further notice due to an attack on one of its vessels over the weekend.

Meanwhile, traders presumably did not know what to make of mixed reports of China's economic health: on one hand Bloomberg disclosed that private refiners and traders received an allocation for crude purchasing "that almost matched the one they received for the entirety of last year, potentially boosting the outlook for the country's consumption."

On the other, Reuters favoured news that manufacturing activity in China shrank in December for a third month, kindling expectations for further stimulus measures.

In other oil news on Tuesday, Chevron said it would take an up to $4 billion impairment in the fourth-quarter 2023 results; most of the impaired assets were in California, "due to continuing regulatory challenges in the state that have resulted in lower anticipated future investment levels in its business plans," the energy giant said in a statement.

Additionally, Chevron "will be recognizing a loss related to abandonment and decommissioning obligations from previously sold oil and gas production assets in the U.S. Gulf of Mexico, as companies that purchased these assets have filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and we believe it is now probable and estimable that a portion of these obligations will revert to the Company."