Brent lurks near $80 as Red Sea tensions spur jitters

    Global oil benchmark Brent remained close to $80 a barrel on Wednesday, driven by concerns over potential disruptions in global trade and geopolitical tensions in the Middle East. These concerns were fueled by attacks on ships in the Red Sea by Yemen's Iran-aligned Houthi forces.

Brent crude futures saw an increase of 60 cents, or 0.8%, reaching $79.83 a barrel by 10:52 a.m. EST (1552 GMT). Meanwhile, U.S. West Texas Intermediate crude rose by 67 cents, or 0.9%, reaching $74.61 a barrel. The market reflects a heightened sensitivity to geopolitical events that could impact oil supplies, contributing to the upward movement in oil prices.

The benchmarks experienced an increase of more than $1 earlier in the session as major maritime carriers opted to avoid the Red Sea route due to concerns over geopolitical tensions. This decision led to longer voyages, subsequently raising transport and insurance costs.

However, oil prices retreated from some of these gains following the release of weekly data from the U.S. Energy Information Administration. The data revealed a surprise build in crude inventories, larger-than-expected gains in fuel stocks, and record levels of domestic oil production. These factors contributed to a shift in market sentiment, prompting a partial reversal in oil prices.

"The United States is becoming this swing producer to the globe," remarked Bob Yawger, the director of energy futures at Mizuho.

In response to the heightened geopolitical tensions, Greece advised commercial vessels navigating the Red Sea and the Gulf of Aden to steer clear of Yemeni waters on Wednesday. Greek ship owners command approximately 20% of the world's commercial vessels in terms of carrying capacity.

Concurrently, on Tuesday, Washington initiated a task force aimed at safeguarding commerce in the region. However, sources, including shipping and maritime security officials, informed Reuters that few practical details are known about the initiative or whether it will directly engage in the event of further armed attacks. The developments highlight the uncertainty surrounding measures to address security concerns in key maritime routes.

The Houthis have declared their intention to defy the U.S.-led naval mission and continue targeting Red Sea shipping, expressing support for the ruling Hamas movement in the Gaza Strip.

Approximately 12% of global shipping traffic traverses the Red Sea and passes through the Suez Canal. While oil supply routes have been adjusted, analysts note that no shortages have emerged.

"As long as production is not threatened, the market will eventually adjust to changing supply routes," stated Ole Hansen, an analyst at Saxo Bank. The situation underscores the importance of monitoring geopolitical developments in key maritime regions.

ECONOMIC GREEN SHOOTS

"It is not a far-fetched thought to attribute the present advance in prices as much to rate-cut expectations, falling bond yields and the dollar, and healthy equity markets as to the geopolitical temperature," noted Tamas Varga of oil broker PVM.

Recent data indicates that central bank efforts to address persistent inflation in Europe have made a meaningful impact. German producer prices, for instance, fell more than anticipated in November. Additionally, it was confirmed that euro zone inflation slowed significantly to 2.4% last month on a year-on-year basis.

However, a European Central Bank policymaker cautioned on Wednesday that it was "rather unlikely" that interest rates would be cut during the first six months of next year. The complex interplay between economic indicators and geopolitical factors continues to shape the oil market's dynamics.

In Britain, inflation saw a sharp decline in November, reaching its lowest rate in over two years, thereby strengthening the case for potential rate cuts.

In a separate development supporting oil prices, the U.S. Energy Department announced on Tuesday that the United States purchased 2.1 million barrels of crude for delivery in February. This purchase is part of the ongoing effort to replenish the country's reserves.

However, data from the American Petroleum Institute revealed that U.S. crude and fuel inventories increased last week, contrary to analysts' expectations of a decline in crude stocks according to a Reuters poll. These contrasting factors contribute to the dynamic and nuanced nature of the oil market.