The price of Brent crude oil experienced a 0.5% decline, reaching $77 per barrel on Wednesday, January 17, 2024, according to global crude oil price assessments as of 02:15 GMT+1.
Concurrently, the U.S. West Texas Intermediate crude futures benchmark also saw a 0.59% decrease, settling at $71.97 per barrel.
This drop in oil prices is attributed to the appreciation of the U.S. dollar, limiting demand for crude oil denominated in greenbacks.
Despite these losses, concerns over potential supply disruptions in the Red Sea due to an escalating conflict have offset the market impact.
Recent U.S. strikes against Iran-aligned Houthi rebels in Yemen, responding to a Houthi attack on a Greek vessel in the Red Sea, have heightened geopolitical tensions.
The continuation of these airstrikes on Tuesday contributed to a modest increase in global crude oil prices due to improved supply dynamics.
However, the upward momentum faltered on Wednesday as the U.S. dollar approached a one-month peak, driven by comments from U.S.
Federal Reserve officials opposing expectations of substantial interest rate cuts. A stronger dollar diminishes demand for dollar-denominated oil for buyers using other currencies.
Analysts noted that the lack of market response to recent geopolitical risks indicates a discounting of the threat of supply disruptions.
Daniel Hynes, senior commodity strategist at ANZ Bank, stated, “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.”
The conflict in the Red Sea has disrupted global trade along a critical route connecting Europe and Asia, constituting approximately 15% of the world’s maritime traffic. Despite these disruptions affecting demand dynamics, the decline in oil prices may be lessened by the impact of the conflict.
In response to the Houthi attacks in the Red Sea, the United States and Britain conducted strikes against Houthi military targets in Yemen.
U.S. President Joe Biden emphasized that these “targeted strikes” convey a clear message against attacks on personnel and threats to freedom of navigation.
British oil major Shell suspended shipments through the Red Sea following the U.S. and UK strikes, while U.S. producer Chevron continued its Red Sea routes. Vivek Dhar, director of mining and energy commodities strategist at the Commonwealth Bank of Australia, noted that despite oil benchmarks not fully reflecting the Red Sea attacks, realized prices for oil and oil products have increased due to disruptions in trade flows through the Red Sea and Suez Canal.
A recent Bloomberg survey revealed that the Organization of Petroleum Exporting Countries maintained steady crude oil production, averaging 28.05 million barrels per day (bpd) in December 2023.
Nigeria, contributing an additional 50,000 bpd, compensated for production reductions by countries like the United Arab Emirates and Angola. The Nigerian Upstream Petroleum Regulatory Commission reported a daily oil production of 1.25 million barrels.
OPEC+ projects Nigeria’s production to reach 1.5 million bpd in 2024, while the federal government anticipates a potential output of up to 2 million bpd this year.
