Offshore Assaults on the Red Sea by Houthi Disrupters Boost Oil Rates
In the face of escalating tensions in the Middle East, the global oil and gas market has shown surprising resilience. Contrary to traditional expectations, **oil and gas prices have not significantly increased and, in some regions, have even decreased recently.**
The recent attacks by Houthi rebels on ships sailing through the Red Sea have not led to a spike in crude prices, as one might anticipate. Instead, the price of August WTI crude oil (CLQ25) increased by a modest 0.59% on Tuesday, closing at +0.40. Similarly, the price of August RBOB gasoline (RBQ25) rose by 1.52% on the same day.
The ongoing conflicts have not significantly disrupted production either. OPEC+, including Saudi Arabia's state-owned producer Aramco, has agreed to boost its crude production by 548,000 barrels per day (bpd) beginning August 1. This is more than the expected increase, aiming to reverse the 2-year-long production cut and gradually restoring a total of 2.2 million bpd of production by September 2026.
Despite the potential risks, the impact of these tensions on crude oil prices and production appears to be limited. For instance, summer gas prices have hit their lowest level in four years, even as tensions persist. This has been attributed to easing tensions and market factors that have balanced supply and demand.
However, it's important to note that a sustained conflict could potentially cause a spike in energy prices as a second-order effect, particularly if supply disruptions occur or geopolitical risk premiums rise. So far, this risk has not materialized into higher crude oil prices or reduced production, but the situation remains fluid and could change if the conflict escalates further.
In addition, the amount of crude oil stored on tankers that have been stationary for at least seven days increased by +3.6% w/w to 79.55 million bbl in the week ended July 4, according to Vortexa. As of June 27, US crude oil inventories were -9.3% below the seasonal 5-year average, while gasoline inventories were -0.7% below and distillate inventories were -21.0% below the 5-year seasonal average, as per the last EIA report.
It's worth mentioning that as of the date of publication, Rich Asplund did not have any positions in the securities mentioned in this article. For more information, please view the Disclosure Policy on the website.
In conclusion, while the Middle East tensions pose a potential risk to energy prices, the market has so far shown resilience. The situation remains dynamic and could change if the conflict escalates further. All information and data in this article are solely for informational purposes.
[1] Source: Vortexa, EIA reports [2] Source: Various news outlets and market analysts
In light of the ongoing conflicts in the Middle East, the financial industry is closely watching the energy sector. Investors are monitoring crude oil prices and production levels, with some observing surprising resilience in the market, defying traditional expectations. Despite increased tensions and potential risks, the price ofAugust WTI crude oil and August RBOB gasoline has not significantly spiked, and crude oil inventories have remained lower than the seasonal 5-year average.
