Oil prices edged up on Monday as traders watched for supply disruption risks in the Middle East following strikes by U.S. and British forces to stop Houthi militia in Yemen from attacking ships in the Red Sea.
Brent crude futures were up 13 cents, or 0.2%, to $78.42 a barrel by 0405 GMT after settling 1.1% higher on Friday. U.S. West Texas Intermediate crude was at $72.73 a barrel, up 5 cents, or 0.1%, following a near 1% gain in the previous session.
The benchmarks jumped more than 2% last week to touch their highest intraday levels this year after U.S. and British forces launched dozens of air strikes against Houthi forces in retaliation for months of attacks on Red Sea shipping that the Iran-backed fighters cast as a response to war in Gaza.
“There are supply risks for the market given the escalation in (the) Red Sea,” said Warren Patterson, head of commodities research at ING. “However, for now we are not seeing any impact on oil supply. And I guess we would need to see significant escalation before that happens.”
On Sunday, the Houthi militia threatened a “strong and effective response” after the United States carried out another strike overnight, ratcheting up tension.
The U.S. later said it shot down a missile fired at one of its ships from Houthi militant areas of Yemen.
President Joe Biden said the United States had sent a private message to Iran about the Houthi attacks.
Several tanker owners steered clear of the Red Sea and multiple tankers changed course on Friday following the strikes, although traders were still watching out for Iran’s response and impact on shipments in the Strait of Hormuz, the world’s most important oil chokepoint.
“As the Middle East conflict is currently not affecting oil production, the geopolitical risk premium priced in oil prices now appears modest based on the implied volatility of options,” Goldman Sachs analysts said in a note.
“While unlikely to materialise in our view, we estimate that oil prices would rise 20% in the first month of a Strait of Hormuz interruption, and may temporarily double in a less likely extended disruption.”
In Libya, people protesting against perceived corruption threatened to shut down two more oil and gas facilities after shutting the 300,000 barrel-per-day Sharara field on Jan. 7.
In the U.S., power and natural gas companies were preparing for extreme cold over the Martin Luther King Day holiday weekend that was expected to cause record gas demand while also cutting supplies by freezing wells.
