Oil rose over 1% on Friday as an increasing number of oil tankers diverted course from the Red Sea following overnight air and sea strikes by the U.S. and Britain on Houthi targets in Yemen after attacks on shipping by the Iran-backed group.
While the diversions were expected to push up the cost and time it take to transport oil, supplies have not yet been impacted, analysts and industry experts noted, stemming further gains in prices.
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Brent crude futures rose $1.08, or 1.4%, to $78.51 a barrel by 1:25 p.m. ET (1825 GMT), after earlier surging over $3 to more than $80.
U.S. West Texas Intermediate crude futures climbed 85 cents, or 1.2%, to $72.85, paring gains after hitting a session high of $75.25.
Both benchmarks, however, were on course to close lower for the week - Brent down 0.2% and WTI 0.8% lower - as sharp price cuts by top exporter Saudi Arabia and a surprise build in U.S. crude stockpiles spurred supply worries earlier in the week.
"Although the lack of shipping through the Red Sea... does create transportation issues for some crude supplies, the impact on the physical oil markets is, thus far, minimal," said Matt Stephani, president at investment advisory firm Cavanal Hill Investment Management.
"If the conflict were to spread to the other side of the Arabian peninsula... oil markets may react much more significantly," Stephani added.
Tanker companies Stena Bulk, Hafnia and Torm all said they had decided to halt all ships heading towards the Red Sea.
However, traffic on Egypt's Suez Canal is regular in both directions and there is no truth to reports that navigation has been suspended due to developments in the Red Sea, Suez Canal Authority head Osama Rabie said.
The U.S. and UK strikes come in retaliation for Houthi attacks since October on commercial vessels in the Red Sea in a show of support for Palestinian militant group Hamas in its fight against Israel.
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The escalation has fed worries the Israel-Hamas war could widen into a broader conflict in the Middle East, disrupting oil supplies. Iran seized a tanker on Thursday carrying Iraqi crude south of the strait destined for Turkey.
Diversion of tankers around South Africa will also push up freight rates as ships take longer routes. The Red Sea, a key route between Europe and Asia, accounts for about 15% of the world's shipping traffic.
A Houthi spokesperson said the group would continue to target shipping heading toward Israel. Iran warned that the attack on Houthis will fuel "insecurity and instability" in the region, according to Iranian state media.
Saudi Arabia called for restraint and "avoiding escalation" and said it was monitoring the situation with great concern.
Also supporting oil prices, China bought record levels of crude oil in 2023 as demand recovered form a pandemic-induced slump despite economic headwinds in the world's biggest energy consumer.
The premium of the first-month Brent contract to the six-month contract rose to as much as $2.09 a barrel on Friday, the highest since early November, in a sign that markets perceive tighter supply for prompt delivery.
On the supply side, Baker Hughes said the U.S. oil rig count, an indicator future production, fell by two to 499 this week.
In Libya, the spokesperson for protesters who have threatened to shut down two oil and gas facilities in Tripoli said they have decided to extend Friday's deadline for closing the facilities by 24 hours as there are negotiations with mediators.
(Reporting by Arathy Somasekhar in Houston, Paul Carsten in London, Sudarshan Varadhan in Singapore; Editing by Marguerita Choy and David Gregorio)
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)