Oil Prices Jump 1% as Tensions Rise in the Red Sea

Oil prices jumped 1% on Tuesday, starting the new year on a high, as a naval clash in the Red Sea drew attention to potential disruption of supplies from the Middle East region, and boosted expectations of Chinese economic stimulus enhancing demand in the world’s largest crude importer.

By 02:25 GMT, Brent crude oil rose by $1.03, equivalent to 1.3%, to $78.07 per barrel.

The average price for West Texas Intermediate crude oil reached $72.53 per barrel, marking an increase of 88 cents or 1.2%.

The risks of the conflict between Israel and the Gaza Strip turning into a wider regional conflict increased at the beginning of the week, after US helicopters repelled an attack on a container ship belonging to Maersk in the Red Sea, launched by Houthi militants on Sunday.

This led to the sinking of three Houthi ships and the killing of ten militants, according to accounts from US officials, Maersk, and the Houthis.

The widening of the conflict in Gaza may potentially lead to the closure of crucial waterways that transport oil supplies, such as the Red Sea and the Strait of Hormuz in the Gulf.

Leon Lee, an analyst at CMC Markets in Shanghai, said, “The price of oil may be affected by the escalation of the situation in the Red Sea at the beginning of the week and the peak demand season during the Chinese New Year in early February.”

He added that the expected demand during the holidays raises expectations for price recovery in January.

Government data on Sunday showed that investor expectations for new stimulus measures in China were strengthened by the continued contraction of manufacturing activity in December for the third consecutive month.

However, a private sector report showed growth last month despite a decline in manufacturing owners’ confidence towards the expectations of 2024 compared to November.