Oil hits 2024 high mark as tankers avoid Red Sea after air strikes; Brent settles at $78/bbl

Oil prices rose one per cent in the previous session as an increasing number of oil tankers diverted course from the Red Sea following overnight air and sea strikes by the US and Britain on Houthi targets in Yemen after attacks on shipping by the Iran backed group. Brent crude futures settled 88 cents, or 1.1 per cent, higher at $78.29 a barrel.

The session high was up over $3 to more than $80, its highest this year. US West Texas Intermediate crude futures climbed 66 cents, or 0.9 per cent, to $72.68, paring gains after touching a 2024 high of $75.25. For the week, Brent was down 0.5 per cent and WTI 1.1 per cent lower. Earlier in the week, sharp price cuts by top exporter Saudi Arabia and a new build in US crude stockpiles spurred supply worries, according to news agency Reuters.

The premium of the first month Brent contract to the six month contract rose to as much as $2.09 a barrel on Friday, the highest since early November, in a sign that markets perceive tighter supply for prompt delivery. Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a January 19 expiry, settled 0.2 per cent higher at 6,045 per bbl, having swung between 6,007 and 6,236 per bbl during the session, against a previous close of 6,033 per barrel.

What's driving crude oil prices? While the diversions by oil tankers were expected to push up the cost and time it take to transport oil, supplies have not yet been impacted, analysts and industry experts noted, easing some of the earlier gains in prices. Analysts said that if the conflict were to spread to the other side of the Arabian peninsula, oil markets may react much more significantly.

Tanker companies Stena Bulk, Hafnia and Torm all said they had decided to halt all ships heading towards the Red Sea. However, Suez Canal Authority head Osama Rabie said traffic is regular in both directions and there is no truth to reports navigation has been suspended due to developments in the Red Sea.

The US and UK airstrikes come in retaliation for Houthi attacks since October on commercial vessels in the Red Sea in a show of support for Palestinian militant group Hamas in its fight against Israel. The escalation has fed worries the Israel Hamas war could widen into a broader conflict in the Middle East, disrupting oil supplies.

Iran seized a tanker on Thursday carrying Iraqi crude south of the strait destined for Turkey. The diversion of tankers around South Africa will also push up freight rates as ships take longer routes. The Red Sea, a key route between Europe and Asia, accounts for about 15 per cent of the world's shipping traffic.

A Houthi spokesperson said the group would continue to target shipping heading toward Israel. Iran warned that the attack on Houthis will fuel instability in the region, according to Iranian state media. Saudi Arabia called for restraint and "avoiding escalation" and said it was monitoring the situation with great concern.

Also supporting oil prices, China bought record levels of crude oil in 2023 as demand recovered form a pandemic induced slump despite economic headwinds in the world's biggest energy consumer. Where are prices headed? Crude oil exhibited significant volatility as prices surged following Iran's seizure of an oil tanker and the US launching an airstrike on Houthi controlled areas, according to analysts.

On Thursday, Iran seized a tanker carrying Iraqi crude bound for Turkey, retaliating against the US's confiscation of the same vessel and its oil last year, as reported by Iranian state media. ‘’Anticipating ongoing geopolitical tensions, we project crude oil prices to remain volatile. Crude oil finds support in the range of $73.10–72.40, with resistance expected at $74.65–75.10 for the current session.

In terms of Indian Rupees (INR), crude oil is supported at 5,940–5,870, while resistance is observed at 6,110–6,190,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd. Livemint tops charts as the fastest growing news website in the world to know more. Unlock a world of Benefits! From insightful newsletters to real time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away!.