Oil Prices Fell Last Week Despite Crisis in the Red Sea

Global oil prices slightly fell last week after significant fluctuations due to the escalation of the crisis in the Red Sea, as well as an unexpected price reduction by Saudi Arabia.

On the London market, the price of a barrel slipped 0.5 percent to $78.29, while on the American market, a barrel decreased by 1.1 percent to $72.68.

Saudi Arabia Reduced Prices

At the beginning of last week, prices significantly dropped as Saudi Arabia surprised the markets by lowering prices for Asian buyers to the lowest level in just over two years.

Analysts speculate that Riyadh is trying to maintain market share after a dispute with a group of countries in the Organization of the Petroleum Exporting Countries (OPEC) regarding production quota reductions.

Angola exited OPEC at the end of last year and increased production, alongside Nigeria and Iraq, a Reuters survey showed.

In the first three months of 2024, Saudi Arabia and Russia decided to reduce supply by an additional approximately 700,000 barrels per day to adjust to decreased demand due to slowing economic growth and thus stabilize prices.

“If we were to focus solely on the fundamentals, including higher inventories, increased OPEC production and non-OPEC producers, and a lower Saudi selling price than expected, we would conclude that prices can only fall,” says Tony Sycamore from IG.

However, geopolitical tensions in the Middle East are providing support for prices.

Crisis in the Red Sea

Thus, at the end of the week, the escalation of the crisis in the Red Sea was in focus for traders.

At the end of last year, Yemeni Houthis began attacking commercial ships linked to Israel in the strait at the entrance to the Red Sea to show support for Palestinian Hamas in the conflict with Israeli armed forces in the Gaza Strip.

On the night from Thursday to Friday, the U.S. and Britain responded with attacks on military targets in Yemen linked to that group, raising fears that the conflict between Israel and Hamas could spread to the entire region and disrupt oil supply.

It is an important point on the trade routes in the Middle East and the Hormuz Strait, which is controlled by Iran. The Iranian navy seized a tanker on Thursday that was transporting Iraqi crude oil intended for Turkey south of the strait.

“The consequences of a potential broader disruption of oil flow through the Hormuz Strait would be up to three times stronger than the price shocks of the 1970s and double the impact of the Ukrainian war on the gas market,” said Saul Kavonic from MST Marquee.

However, fears of weakening demand are preventing price increases. Namely, the Chinese economy, the world’s largest oil importer, is not recovering as quickly as expected, while growth in the U.S. and Eurozone economies has been slowing for some time.