Profit Taking Dents Oil Prices As Analysts Dismiss Red Sea Impact

Meanwhile, Russia considers another export ban on gasoline: File Image/Pixabay

With ample evidence that geopolitical conflicts had little to no impact on crude production, oil traders on Monday were said to have seized  the opportunity for profit taking, and as a result two benchmarks declined slightly.

Brent settled down 14 cents at $78.15 per barrel, and as of 1513 EST West Texas Intermediate was down 18 cents at $72.50 (the U.S. Martin Luther King Jr. Day holiday precluded any settlement).

Despite the U.S. and Britain entering the Red Sea conflict over Houthi attacks on merchant vessels, and despite at least four tankers being held up in the region, Tamas Varga, analyst at PVM, noted that "The realization that oil supply has not been adversely impacted is leading last week's bulls to take profit, with the move down somewhat exacerbated by a slightly stronger [U.S.] dollar."

Citigroup Inc. analysts wrote in a note, "It is not our base case that U.S./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."

They added that even though it too wasn't in their base case, "a possible escalation in tensions between Israel and Hezbollah and/or Iran, which the market believes may result in supply disruption, or actually results in supply disruption, is a larger concern in the near-term."

According to data from Kpler, Red Sea tanker traffic was steady throughout December at 230 vessels daily on average compared 239 in November (but container ship traffic dropped 31 percent in December compared to November).

For its part, Bloomberg theorized that Monday's trading behaviour "suggests the market doesn't, at this point, see a high chance that the evolving conflict will endanger crude production and flows from the wider Middle East, which accounts for around a third of the world's oil; instead, the prospect of rising supply from non-OPEC countries and slowing demand growth are helping to keep prices range-bound."

Still, on Monday a key trade group was informed by the U.S. Navy that shipping in the Red Sea is still too risky and merchant vessels should avoid the route; this came on the heels of Houthi militants hitting a U.S.-owned commercial vessel with an anti-ship ballistic missile.

In other oil news on Monday, media reported that after output at Russia's Lukoil refinery in Nizhny Novgorod was stymied on Friday, Moscow was considering a ban on gasoline exports to prevent domestic shortages amid the call for other oil companies to help make up the shortfall of 200,000 tons of high-octane gasoline for January and next month.

One source said, "The breakdown is serious... There will be a reduction in production of AI-95, AI-98 this month."