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

Oil saw larger declines early Friday after a Federal Reserve official walked back dovish comments made earlier this week by the Fed Chair Jerome Powell, helping to strengthen the U.S. dollar.

Price action

• West Texas Intermediate crude for January
  CL00,
  +0.28%

  CL.1,
  +0.28%

  CLF24,
  +0.28%
  declined by 15 cents, or 0.2%, to settle at $71.43 a barrel on the New York Mercantile Exchange, with prices ending 0.3% higher for the week, according to Dow Jones Market Data.

• February Brent crude
  BRN00,
  +0.44%

  BRNG24,
  +0.44%,
  the global benchmark, fell 6 cents, or nearly 0.1%, to $76.55 a barrel on ICE Futures Europe, settling 0.9% higher for the week.

• January gasoline
  RBF24,
  +0.69%
  added 0.9% to $2.14 a gallon, up almost 4.3% for the week, while January heating oil
  HOF24,
  +1.34%
  climbed 1.1% to $2.62 a gallon on Nymex, marking a weekly rise of 1.5%.

• Natural gas for January delivery
  NGF24,
  +3.22%
  gained 4.1% to $2.49 per million British thermal units, but still logged a weekly loss of 3.5%.

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 posed 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 [the] 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.

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.

For the week, both U.S. and global benchmark crude prices posted gains.

“The combination of lower U.S. inventories, stronger economic data, and improved OPEC compliance [with production cuts] for the month of November were the highlights of the week,” said Peter McNally, global head of sector analysts at Third Bridge.

“However, there are ongoing seasonal challenges that forced OPEC to sustain production cuts through the first quarter of 2024, so it remains to be seen if they have done enough to prevent inventories from continuing their upward trend,” he said.

Read The Year Ahead: Why oil may not see a return $100 a barrel in 2024

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.

That ran 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.