Oil Rises Again On Red Sea Concerns But Analysts Doubt Full-Blown Rally

Meanwhile, hopes for a brighter 2024 result in huge U.S. production output: File Image/Pixabay

Ongoing concerns about Red Sea skirmishes involving tankers by militant groups seeking vengeance on Israel continued to spook traders on Tuesday, the result being another rise in oil prices, this time on the order of over 1 percent.

Brent settled up $1.28, or 1.6 percent, at $79.23 per barrel, while West Texas Intermediate settled up 97 cents, or 1.3 percent, at $73.44 per barrel.

Little solace was taken when Washington on Tuesday announced the formation of a maritime task force that would protect the flow of commerce in the Red Sea: "Despite the launch of the operation to ensure safe passage through the Red Sea major shipping firms are still steering clear," said Fiona Cincotta, senior analyst at City Index, adding that the uncertainty of the duration of the attacks was "unnerving the market."

Despite the commodity's gains this week, analysts fell short of predicting any sustained upward price trajectory: Giovanni Staunovo, an analyst at UBS, said of the geopolitical risk,  "For now the impact is limited as oil keeps flowing, just with longer journeys translating in higher transportation costs."

Fawad Razaqzada, a market analyst at City Index, agreed, pointing out that it's "very difficult to say how long the gains will last for or how much higher will prices go from here on, just on the back of this factor alone."

Muddying the analytical waters further was the now familiar disclosure from the American Petroleum Institute showing an increase in U.S. crude oil and fuel inventories, when expectations were for a decline in stockpiles.

For its part, Bloomberg repeated earlier warnings that timespreads continue to indicate weakness, thus throwing into serious question any chance of a meaningful commodities rally: "WTI's prompt spread, the difference between its January and February contracts, settled at 50 cents in contango, signalling an abundance of barrels available in the near term."

And yet, optimism for trade in the foreseeable future remained undiminished: according to a report published Tuesday by S&P Global Commodity Insights, the U.S. is set to produce a global record of 13.3 million barrels per day (bpd) of crude and condensate during the fourth quarter of this year, driven by global demand expected to set a record in 2024.