Brent crude price fell by 0.5% to $77 per barrel on Wednesday, January 17 2024.
A Nairametrics review of global crude oil prices as of 02:15 GMT+1, revealed that Brent was trading at $77.93 per barrel.
In addition, the benchmark price for U.S. West Texas Intermediate crude futures (WTI) also showed in a decline of 0.59%, to $71.97 a barrel.
The decline in oil prices can be ascribed to the appreciation of the U.S. dollar, constraining demand for crude oil denominated in greenbacks. However, mitigating the losses were the escalating risks of supply disruptions in the Red Sea due to the intensifying conflict.
Nairemetrics reported that the U.S. initiated fresh strikes against Iran-aligned Houthi rebels in Yemen on Friday, responding to a Houthi assault on a Greek vessel in the Red Sea.
On Tuesday, the continuation of the airstrike played a role in a modest elevation of Crude Oil prices in the global market, attributable to a substantial improvement in supply dynamics.
Meanwhile, the upward momentum of oil prices faltered on Wednesday, given the U.S. dollar’s proximity to a one-month peak following remarks from U.S. Federal Reserve officials opposing anticipations of substantial interest rate cuts.
Accordingly, the stronger dollar reduces demand for dollar-denominated oil for buyers paying in other currencies.
- Falling oil prices were “triggered by slightly more hawkish comments from central bankers,
- “The lack of response from the market to recent geopolitical risks suggests it is discounting the threat of supply disruptions. However, while no output has been lost so far, it is indirectly tightening in the market by pushing more supply onto the water,” Daniel Hynes, senior commodity strategist at ANZ Bank, said in a note.
Red Sea Conflict Mitigates against Supply of Crude Oil
- Moreover, Houthi assaults in the Red Sea have disturbed global trade along the crucial route connecting Europe and Asia, constituting approximately 15% of the world’s maritime traffic.
- The conflict, however, has contributed to the decline in the demand dynamics in the global market, reducing the effect of the bullish run of the greenback on the price of Crude oil.
- On Friday, the United States and Britain carried out strikes against Houthi military targets in Yemen in retaliation for attacks by the Iran-backed group on shipping in the Red Sea starting from late last year.
- U.S. President Joe Biden said the “targeted strikes” were a clear message that the United States and its partners will not tolerate attacks on its personnel or “allow hostile actors to imperil freedom of navigation”.
- Also, British oil major Shell suspended shipments through the Red Sea after the U.S. and UK strikes began, but U.S. producer Chevron is maintaining its Red Sea routes.
- “While oil benchmarks may not reflect the Red Sea attacks, the realised price for oil and oil products for consumers has increased given the disruption to trade flows through the Red Sea and Suez Canal,” Vivek Dhar, director of mining and energy commodities strategist at the Commonwealth Bank of Australia, said in a note
More Insights
- A recent survey by Bloomberg showed that the Organization of Petroleum Exporting Countries (OPEC) crude oil production maintained a steady production of crude oil with an average of 28.05 million bpd in December 2023 with Nigeria boosting output by an extra 50,000 bpd.
- OPEC+ sustained supply restraints from countries like the United Arab Emirates and Angola cutting back on production. However, other countries like Nigeria compensated for the reduction.
- The latest data published by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) reveals that the country’s daily oil production stands at 1.25 million barrels, with the information conveyed through its “direct communication” channels.
- In addition, OPEC+ also projected that Nigeria would produce 1.5 million bpd in 2024, although the federal government protected the country can produce as high as 2 million bpd this year.