Oil prices up 1% as Middle East tensions offset US inflation worries

NEW YORK: Oil prices gained about 1% on Thursday )Jan 11) after Iran seized an oil tanker off the coast of Oman, raising the prospect of escalating conflict in the Middle East.

Brent futures rose 61 cents, or 0.8%, to settle at US$77.41 (RM359.33) a barrel, while US West Texas Intermediate crude rose 65 cents, or 0.9%, to settle at US$72.02 (RM334.31).

Earlier in the session, both benchmarks were up over US$2 a barrel but have pulled back on an unexpected increase in US inflation and reports China was seeking fewer Saudi imports.

US diesel and petrol futures led energy markets higher with diesel, which is also used as a heating fuel, gaining about 3% to a three-week high on forecasts for extreme cold across much of the US next week.

“The best kind of rally in the crude oil space is one that is led by the products ... as long as the refiner needs to make more product, he is going to need to buy more crude oil,” said Bob Yawger, director of energy futures at Mizuho Bank.

In the Middle East, Iran seized a tanker with Iraqi crude destined for Turkiye in retaliation for the confiscation last year of the same vessel and its oil by the US.

The seizure of the Marshall Islands-flagged St Nikolas coincides with weeks of attacks by Yemen’s Iran-backed Houthi militias targeting Red Sea shipping routes.

Yemen-based Houthis this week mounted their largest attack yet on commercial shipping lanes in the Red Sea.

The US and Britain hinted they would take further measures if the attacks continued. The UN Security Council passed a resolution demanding an immediate end to the Houthi strikes.

Global trade declined by 1.3% from November to December 2023 as militant attacks on merchant vessels in the Red Sea led to a plunge in the volumes of cargo transported in the region.

“Slowing demand, unrest in Middle East and muted price reaction have producers, consumers and market participants alike feeling paranoid about oil prices,” Barclays said as the bank lowered its 2024 Brent forecast by US$8 to US$85 a barrel.

Oil prices were up even though US data showed consumer inflation rose 3.4% in December on a yearly basis versus a 3.2% increase expected by economists polled by Reuters.

The higher-than-expected rise in inflation could delay a much anticipated interest rate cut in March from the US Federal Reserve.

“Given that markets have continued to price in rate cuts in March, a delay of the currently anticipated timeline would dampen investor sentiment, likely bringing (crude) price declines with it,” analysts at energy consulting firm Gelber and Associates said.

Lower interest rates would reduce consumer borrowing costs, which could boost economic growth and demand for oil.

Refiners in China, the world's top oil importer, asked for less Saudi crude oil in February even though Saudi Arabia, the world’s top oil exporter, announced its biggest price cut in 13 months.

Looking ahead, China’s customs administration will release December trade data on Friday, giving a full-year picture of overall demand. – Reuters