Oil prices headed for weekly gains as Middle East tension continues

Maritime disruptions in the Red Sea could have potential consequences on crude prices in 2024, analysts say

Attacks on commercial ships by Yemen's Houthi rebel group have imperilled a vital global shipping route through the Bab Al Mandeb. Getty Images

Oil prices fluctuated on Friday but are on track to end the week higher amid continued Middle East tension and potential disruption to oil supplies from the region.

Brent, the benchmark for two thirds of the world’s oil, dropped 0.54 per cent to close at $78.56 a barrel.

West Texas Intermediate, the gauge that tracks US crude, dropped 0.67 per cent to close at at $73.41 a barrel.

“While the price of crude remains sensitive to events in the Middle East, as we've seen over the last couple of weeks, the oil market remains well-balanced, which is why we're not seeing prices higher,” said Craig Erlam, a senior market analyst at Oanda.

Geopolitical tension in the Middle East is continuing to rise amid the Israel-Gaza conflict, stoking fears that it could engulf the entire region and disrupt oil supplies from the Middle East.

Yemen’s Houthi militants, who say they are acting in solidarity with Palestinians, intensified attacks on ships passing through the Red Sea, a key waterway connecting Asia and Europe.

Bab Al Mandeb, on the southern edge of the Red Sea, is a route for oil tankers and cargo ships sailing between the Arabian Gulf and Asia, as well as to Europe through the Suez Canal.

About 12 per cent of the world's seaborne oil trade and 8 per cent of liquefied natural gas pass through the strait.

Many shipping companies have suspended their operations along the Red Sea and are forced to travel through the longer Cape of Good Hope route at the southern tip of Africa to transport goods to Europe and other destinations amid Houthi attacks.

“The maritime disruptions in the Red Sea could have potential consequences on the crude oil price in 2024,” said Ritu Singh, regional director of Stone X Group.

Watch: US strikes Houthis for fourth time as Biden says attacks will continue

“The Red Sea is a crucial route for oil transportation, with an estimated seven million barrels a day of oil and products flowing through the Bab Al Mandeb Strait. Recent incidents in this area left oil tanker traffic exposed to risks and led some oil and shipping companies to avoid the Suez Canal route.”

Bullish demand forecasts by Opec have also been supporting oil prices.

Global oil demand growth is expected to record “robust” annual growth of 1.8 million barrels per day in 2025, Opec said in its monthly report on Wednesday.

Demand in Organisation for Economic Co-operation and Development member countries is expected to grow by 0.1 million bpd, while demand in the non-OECD states is forecast to increase by 1.7 million bpd, according to the Opec report.

“Oil prices are rising after a deepening geopolitical crisis in the Middle East,” said Fiona Cincotta, senior market analyst at Forex.com.

“Other incidents like Iran capturing an oil tanker off the coast of Oman and the US-led coalition launching multiple attacks on Yemen have kept oil prices on track.”

The US carried out more strikes on the Houthis on Thursday, destroying anti-ship missiles the White House said the Iran-backed rebels were planning to use for attacks in the Red Sea.