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Oil prices on track for first weekly gain in 8 weeks as traders fret over attacks on ships in the Red Sea

Oil futures pared their early Friday losses, setting prices up for a gain on the week.

Attacks on ships traveling through the Red Sea, blamed on Yemen’s Houthi rebels, raised the potential for disruptions to the transport of oil and other goods.

Prices for oil had traded decidedly lower early Friday after a Federal Reserve official walked back dovish comments made earlier this week by the Fed Chair Jerome Powell, leading to a rebound in the U.S. dollar.

Price action

  • West Texas Intermediate crude for January CL00, +0.07% CL.1, +0.07% CLF24, +0.07% was down 15 cents, or 0.2%, to $71.43 a barrel on the New York Mercantile Exchange, with prices trading around 0.4% higher for the week, FactSet data show.
  • February Brent crude BRN00, +0.18% BRNG24, +0.18%, the global benchmark, added 23 cents, or 0.3%, to $76.84 a barrel on ICE Futures Europe, trading roughly 1.3% higher for the week.
  • January gasoline RBF24, +1.31% added 1.4% to $2.149 a gallon, while January heating oil HOF24, +1.37% climbed 2.2% to $2.6481 a gallon on Nymex.
  • Natural gas for January delivery NGF24, +5.48% gained 5.2% to $2.516 per million British thermal units, but still eying a weekly loss of 2.5%.

Price support

Danish shipping company A.P. Moeller-Maersk MAERSK.A, +7.52% said it will pause all of its container shipments through the Red Sea until further notice and detour them around Africa, Reuters and Bloomberg reported Friday, amid rising risks to its fleet posted by Houthi militants.

The Red Sea is “one of the hot pockets of seaborne crude flows,” accounting for approximately 10% of global volume, said Manish Raj, managing director at Velandera Energy Partners. “Although the attackers lack sophistication … shipping crews are even less sophisticated, making them easy targets.” 

A potential blockage of the Red Sea route would be “chaotic indeed, but not nearly as detrimental as blockage of Strait of Hormuz near Iran, for which there is no viable alternative,” Raj said.

Read from the AP: How are Houthi attacks on ships in the Red Sea affecting global trade?

For now, there is concern over higher insurance costs for these ships, said Phil Flynn, senior market analyst at the Price Futures Group.

With ships in the Red Sea continuing to be at high risk, ‘it won’t take that much for the market’ to see oil prices spike if an oil tanker should be hit.

— Phil Flynn, Price Futures Group

Obviously, the risk to oil supply is large, although “so far, most of the attacks have been on cargo ships and not oil-related ships,” Flynn told MarketWatch.

However, as ships in the Red Sea continue to be at high risk, “it won’t take that much for the market” to see oil prices spike if an oil tanker is hit, Flynn said.

Price pressures

Oil had been trading lower early Friday after New York Federal Reserve President John Williams told CNBC that it is “premature” to discuss whether it is time to cut interest rates. “We aren’t really talking about cutting interest rates right now,” Williams said in a CNBC interview.

That was contrary to Powell’s comments Wednesday that Fed officials were starting to discuss when to cut rates.

After the euphoria in the U.S. stock market over the Powell “pivot party” on Wednesday, we got a “wake-up call” from Williams when he pushed back on market expectations for a March rate cut, Michael Hewson, chief market analyst at CMC Markets UK, said in market commentary.

Crude-oil prices had previously found some support from the Fed’s stating it was likely done hiking interest rates, StoneX’s Kansas City energy team, led by Alex Hodes, said in a Friday note.

Oil prices on Thursday had climbed by roughly 3%.

Oil prices had posted back-to-back gains Wednesday and Thursday, after ending last week with their longest streak of weekly losses since 2018. Commodity-market experts have largely attributed the recent oil-price rise to a combination of short covering and a weaker U.S. dollar.

The dollar has fallen 1.4% this week against major currencies, based on the move in the ICE U.S. Dollar Index DXY, a popular gauge of the greenback’s performance.

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