Oil prices experienced a downward trend in a volatile session as overall risk-off sentiment overshadowed the impact of reduced crude production in North Dakota and ongoing risks in the Red Sea region. West Texas Intermediate (WTI) futures saw a 0.4% decline, settling near $72 per barrel. The strengthening of the dollar contributed to the dip, making the commodity pricier for international buyers. Despite an earlier surge driven by a cut in output at the second-largest U.S. shale basin and increased attacks by Houthi rebels, prices remained within a rangebound trading pattern, swinging nearly $2 on Tuesday. In contrast, Brent futures settled slightly higher.
The reduction in production in the second-largest U.S. shale basin, amounting to as much as 650,000 barrels per day, initially buoyed prices. Simultaneously, heightened tensions in the Red Sea, with Houthi rebels intensifying attacks, added to the complex market dynamics. However, the prevailing risk-off sentiment in broader markets offset these factors, leading to a decline in oil prices.
Shell Plc suspended all shipments through the affected area due to the strikes, but physical crude supplies remained unaffected. Chevron Corp. CEO Mike Wirth clarified that the company has not implemented “fundamental” changes to its shipping routes despite the disruptions caused by the conflicts.
The Israel-Hamas conflict initially introduced a war-risk premium to crude prices, which subsequently faded after a few weeks. The recent U.S.-led attack on Houthi targets, responding to continued strikes on vessels, has heightened tensions, raising concerns about Iran’s direct involvement in the conflict. Despite this, oil markets appear to be discounting the possibility of such a scenario.
While the conflicts have not resulted in direct production losses, Citigroup Inc. noted that the diversions in shipping routes are indirectly tightening the market by accumulating oil stocks on water. However, the note highlighted that it is not the base case for U.S./UK strikes on Houthi targets and Red Sea issues to lead to a significant upside in oil prices.
