Oil prices surged over 2% on Tuesday, reaching their highest level this month, driven by concerns over further attacks on ships in the Red Sea and the anticipation of interest rate cuts that could stimulate economic growth and fuel demand. Brent crude futures rose by $2.41, or 3.1%, to $81.48 a barrel, while US West Texas Intermediate crude increased by $2.36, or 3.2%, to $75.92. The uptick in prices, occurring during reduced trading activity due to holiday closures in some markets, followed last week’s 3% gains, which were spurred by Houthi attacks on ships and the ongoing Israel-Hamas conflict.
The recent explosions in the Red Sea, coupled with the sighting of unmanned aircraft and missiles, have heightened concerns about the security of oil and goods transit. While these events have led to the suspension of shipping routes and the imposition of surcharges for re-routing ships, actual supply has not been impacted thus far. Maersk’s decision to resume shipping routes through the Red Sea has provided some relief, easing worries about potential disruptions to the supply chain. The Red Sea is a critical passageway, connecting with the Suez Canal, which is utilized for approximately 12% of global trade.
In addition to the developments in the Red Sea, oil prices have also been influenced by expectations of future interest rate cuts by the Federal Reserve. Anticipated rate reductions are seen as a means to lower consumer borrowing costs, potentially fostering economic expansion and, in turn, boosting oil demand. The combination of these factors has contributed to the recent surge in oil prices, underscoring the intricate interplay between geopolitical tensions and macroeconomic considerations in shaping global energy markets.