Oil Rangebound As Red Sea Tensions Fail To Cause Supply Crunch

Meanwhile, Chevron boss expresses concern for a long-term crunch: File Image/Pixabay

Although Middle East tensions continued to percolate and the U.S. dollar hit a one-month high on Tuesday, oil prices remained largely unchanged.

Brent settled up 14 cents at $78.29 per barrel, while West Texas Intermediate settled down 28 cents at $72.40 per barrel.

The reason for the dollar escalation was said to be the result of analysts cooling on earlier expectations of the U.S. Federal Reserve delivering an interest rate cut in March.

As for geopolitical tensions, they were stoked by the U.S. military carrying out a new strike in Yemen against four Houthi anti-ship ballistic missiles.

Yet, Tuesday's oil trading remained somewhat rudderless, and this caused Rob Thummel, managing director at Tortoise Capital, to remark, "Tensions in the Middle East are rising so the geopolitical risk premium in oil prices should be rising as well."

But Dennis Kissler, senior vice president at BOK Financial, pointed out that unless a substantial disruption of petroleum products through the Red Sea becomes apparent, "crude futures will remain range bound."

Still, the conflict between the East and the West troubled Michael Worth, CEO of Chevron, enough to tell media that "It's a very serious situation and seems to be getting worse."

He added that "So much of the world's oil flows through that region that were it to be cut off, I think you could see things change very rapidly."

Worth too expressed surprise that WTI was trading below $73 given the circumstances, and he went on to warn that as the conflict evolves, "We really have to watch very carefully."

While the general concern is that short-term crude supplies could tighten, Vicki Hollub, chief executive of Occidental Petroleum, revealed at the Davos forum on Tuesday his concerns about supply crunch over the long term, and it had nothing to do with geopolitics.

Instead, Hollub worried that global tightness could occur from 2025 onward as exploration for new reserves lags behind demand growth, and he estimated that the ratio of discovered resources versus demand is now around 25 percent.

He said, "In the near term, the markets are not balanced; supply, demand is not balanced…..2025 and beyond is when the world is going to be short of oil."