Oil Posts Biggest Weekly Gain In Two Months On Red Sea Chaos

(Bloomberg) -- Oil posted the biggest weekly gain since October as attacks in the Red Sea forced hundreds of ships to take safer but longer routes, delaying the delivery of oil cargoes.

US benchmark WTI edged down to settle below $74 a barrel on Friday as reports that Russia was scaling back its export reductions in January undercut some of the Red Sea risks. Crude was still up 3% for the week. Attacks by the Iran-backed Houthi militant group forced more ships take extensive detours to avoid the vital waterway, with disruptions seen lasting through February. 

So far this week, only about 30 tankers, including crude oil and fuel carriers, have entered the Bab al-Mandab Strait at the southern end of the Red Sea, according to vessel-tracking data compiled by Bloomberg. That’s a drop of more than 40% versus the daily average over the previous three weeks as the Houthis target merchant ships in a show of support of Hamas in its war with Israel. 

Crude is headed for its first annual drop since 2020 as surging production from the US and elsewhere counters efforts by the OPEC+ alliance to shore up the market through output cuts. The outlook for demand is also fragile, with the International Energy Agency forecasting that growth will slow sharply next year. 

Geopolitical events provide a buffer to oil’s decline, but “fundamental weakness continues to be the overarching concern,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth.

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