Oil Prices Rise Amid Violent Attacks In Red Sea: Will Gas Prices Increase As A Result?

Topline Oil prices have shot up in the first two weeks of 2024 as a series of missile and drone strikes in the Red Sea throw a curveball in the international oil market, though analysts are skeptical the rise in oil prices will translate into an increase drivers see at the pump. Oil prices have shot up in recent weeks amid rising tensions in the Red Sea.

Key Facts The West Texas Intermediate, a national benchmark for oil, has increased by more than 2.5% on the year to over $72 per barrel, while the international benchmark Brent Crude Futures has jumped nearly 1.5% on the year to roughly $77—though that price has dropped substantially from its peak just above $94 in September.

The recent rise in prices comes amid escalating conflict in the Red Sea, a 1,400 mile long body of water connecting the Indian Ocean to the Mediterranean Sea through the Suez Canal, where roughly 10% of global trade (17,000 ships) passes through every year, according to the International Trade Magazine.

President Joe Biden said last week more than 2,000 ships have diverted course to avoid the area. Craig Erlam, an analyst with OANDA, told Reuters this week oil markets “are still sensitive to tensions in the Middle East,” but doubted that tension will result in “significant disruption to flows.” Gasoline prices in the U.S., meanwhile, have also remained relatively low, while U.S.

crude oil supplies have inched up—helping to offset rising oil prices on the international market—with crude oil inventories increasing by 1.3 million barrels to 432.4 million barrels in the week ending Jan. 5, according to data from the Energy Information Administration. Domestic crude oil production over the same time remained at 13.25 million barrels per day, more than 1 million barrels per day higher than this point one year ago.

Tangent On Tuesday, British oil giant Shell suspended its shipments through the Red Sea, sources familiar with the matter told the Wall Street Journal —company CEO Wael Sawan said at a World Economic Forum event on Tuesday that Shell’s “priority is the welfare of our people and of course protecting our assets.” News Peg U.S.

forces on Tuesday launched a strike on Yemen targeting anti ship missiles in a part of the country controlled by Iran backed Houthi rebels, one day after a U.S. owned ship off the coast of Yemen. The strike comes amid growing conflict in the area, disrupting ship traffic through the Red Sea and leading a group of companies to pause production.

Last week, U.S. and U.K. navy troops shot down nearly two dozen drones and missiles launched into the Red Sea by Houthi rebels. Earlier this month, U.S. helicopters above the Red Sea sank three Houthi boats after rebels on those boats attacked a shipping vessel on the Red Sea. Surprising Fact Gas prices have been on a downward trend since late September.

As of Tuesday, the national average price for a gallon of gasoline costs $3.07, a 27 cent drop from mid December and 80 cents less than the national average in mid September, according to data from AAA . While gas demand in the U.S. typically dwindles in the winter—corresponding with lower prices at the pump—analysts expect prices to linger just above $3 per gallon, on average.

AAA spokesperson Andrew Gross speculated frigid temperatures could be to blame, saying cold air “can affect refinery production, pushing some regional pump prices higher.” Cold temperatures in the Great Lakes states over the Martin Luther King Jr. Day weekend sparked concern over refinery outages, De Haan posted on Monday, though he said he is “hoping” the national average gas price could still drop below $3 this week.

Key Background Oil prices have fluctuated over the past two years amid uncertainty in the global energy market, following Russia’s invasion of Ukraine in February, 2022, with the Brent hitting a near record peak at $112 per barrel in June of that year. While oil prices started to come down over the fall and winter of 2022, they shot back up again last summer, after Saudi Arabia, the world’s second largest crude oil producer, cut its oil production by 1 million barrels per day through December—sending the price of a barrel of oil on the Brent Crude Futures up 2.5%.

Russia, the world’s third largest oil producer, said in September it would extend its reduction on daily oil exports by 300,000 barrels. Further Reading Oil Prices Soar To 2023 Highs—Threatening Higher Prices At The Pump After Output Cuts (Forbes).