Oil holds large weekly gain with Red Sea tensions to the fore
Brent advanced 3% last week for the biggest gain in two months
Oil steadied yesterday after posting the largest weekly climb in more than two months, with shipping disruptions in the Red Sea in focus after a spate of Houthi attacks against vessels in the vital waterway.
Investors were also betting big that the US Federal Reserve would soon start cutting interest rates boosting global economic growth and fuel demand.
Global benchmark Brent was above $79 a barrel after rallying by more than 3% last week, the biggest advance since October. US marker West Texas Intermediate was up 3 cents at $73.59.
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Ships have been forced to reroute following the strikes, prompting the formation of a multinational maritime task force to help protect commercial vessels. Container giant AP Moller-Maersk A/S now says it's preparing to resume using the route, which links to the Suez Canal.
"Energy supply chains will face yet another round of upheaval" as the Red Sea attacks produce knock-on effects, according to analysts at S&P Global Market Intelligence. "Alternative routings are compromised either practically or economically," with transits via the Cape of Good Hope adding at least 10 days to journey times.
Crude's recent gains helped to pare a quarterly decline, as oil remains on course for a loss of about 8% this year. Traders are concerned that despite pledges of further output cuts from the Organization of Petroleum Exporting Countries and its allies, global crude supply may run ahead of demand next year. Angola quit the producer group on Friday amid disagreements over quotas, but remaining members were quick to reaffirm the cartel's unity.
Timespreads have strengthened over recent sessions. Among them, Brent's prompt spread — the difference between its two nearest contracts — has swung to 31 cents a barrel in backwardation, a bullish near-term pricing pattern, versus 16 cents a barrel in the opposite contango structure a week ago.
The week between the Christmas and New Year holidays is likely to see lacklustre liquidity, with combined aggregate open interest across the main oil contracts tracking lower since about the middle of this month. Oil's implied volatility has also declined over recent weeks.
