Oil prices settled higher as traders monitor tensions in the Middle East

Earlier this week, Iranian-backed Houthi rebels operating out of Yemen launched their deadliest barrage of missiles and drones targeting cargo ships in the Red Sea.

The attacks, launched following the start of the war between Israel and Hamas in October, targeted ships in the Red Sea, which connects the Middle East and Asia to Europe via the Suez Canal and the narrow Bab al-Mandab Strait. This strait is only 18 miles wide at its narrowest point, limiting traffic to two channels for incoming and outgoing shipments, according to the U.S. Energy Information Administration. Nearly 10% of the total oil traded in the sea passes through it. An estimated trillion dollars in goods pass through the strait annually.

The US military said the drones and missiles were shot down without causing damage, but continued attacks have forced shipping companies to avoid the waterway. The Wall Street Journal reported that the United States is simultaneously considering strikes against Houthi ground targets in Yemen in response to the attacks.

The Houthi rebels in 2019 reported major attacks on energy assets in the United Arab Emirates and Saudi Arabia, both of which were also targeted by Houthi missiles and missile strikes, after the United States ended waivers for importers of Iranian crude and imposed maximum pressure sanctions. Helima Croft, Head of Global Commodity Strategy at RBC Capital Markets.

“We can envision a scenario where the Houthis revive such tactics if the United States and its allies directly target their bases in Yemen in response to escalating naval confrontations. The Red Sea’s economic infrastructure, including the Jizan and Jeddah refineries, could be particularly vulnerable,” she wrote. .

Moreover, Croft said that if Iran were drawn directly into the conflict, it could once again target tankers in the Strait of Hormuz and sabotage regional energy facilities in order to internationalize the cost of war.

In the Gulf of Oman, Iran seized an oil tanker on Thursday, with some speculating the move is retaliation for the U.S. seizure of an Iranian tanker last year, the energy team at StoneX in Kansas City, led by Alex Hodes, said in a note Thursday.

They added, “This incident occurred far from the Red Sea, but it indicates that tensions are high in the Middle East.”

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Oil traders also reacted to US data that showed consumer prices rose 3.4% year-on-year in December, faster than the 3.1% rise the previous month.

The higher-than-expected figure is likely to reduce the chances of the Fed cutting interest rates at its March meeting, Robert Yawger, director of energy futures at Mizuho Securities USA, said in a daily report.

However, he said a rate cut “would be a positive event for crude oil demand growth – the sooner the better.”

A report from the Energy Information Administration released on Wednesday contributed to the pressure on oil prices – revealing an unexpected weekly rise in US crude supplies along with huge gains in gasoline and distillate inventories.

Separately, the Energy Information Administration reported Thursday that natural gas supplies in U.S. storage fell by 140 billion cubic feet for the week ending January 5. On average, analysts surveyed by S&P Global Commodity Insights expected to see a decline of 122 Bcf.

Natural gas prices ended higher on Thursday, contributing to gains this week, as winter weather forecasts in the United States boosted demand expectations for the commodity.

The Associated Press contributed to this article.