Oil prices started the New Year in the green on Tuesday, driven by the prospect of supply disruptions in the Middle East as the conflict in the Red Sea continued, while expectations of higher holiday demand and stimulus measures from China grew.
March contract Brent crude oil futures gained 1.97% to $78.56 per barrel, whereas the US West Texas Intermediate (WTI) added 1.74% to $72.90 per barrel.
Analysts see the global benchmark averaging $82.56 in 2024 compared to the average of $82.17 last year. They expect sluggish economic growth worldwide to curb demand, although they forecast geopolitical conflict to fuel it.
Red Sea Conflict and China Holiday, Stimulus to Impact Oil
US Navy helicopters on Sunday sank three boats of Yemen’s Houthi militants after the rebels attacked a cargo ship in the Red Sea, resulting in ten casualties on the side of the Iran-backed group in the latest escalation of the maritime spat linked to the war in Gaza.
The assault increases the risk of turning the war between Israel and Gaza into a larger regional battle.
Shanghai-based analyst Leon Li stated that the intensifying conflict in the Red Sea on the weekend and peak demand season amid China’s Lunar New Year holiday, set for February 10, may impact the prices of crude.
The expected Chinese holiday demand might also strengthen the possibility of a price recovery this month, according to Li.
A broader spat risks shutting important water passages for shipping oil supplies, such as the Red Sea and the Strait of Hormuz, which links the Persian Gulf and the Gulf of Oman.
Iranian media reported on Monday that the country’s Alborz warship has been dispatched to the Red Sea in response to the US’s recent naval attacks.
In China, the prospect of additional stimulus measures increased after the country saw its manufacturing activity slowed to 49 in December from November’s 49.4.
The reading marked the third consecutive month of contraction and the latest sign that the world’s second-largest economy requires more momentum.
The new stimulus could help drive China’s growth, possibly pushing oil demand higher in the top crude importer and the world’s top two oil consumer and shoring up prices.
