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Oil drops as US leads Navy task force in Red Sea

Oil fell on Tuesday after spiking earlier in the week on reports Yemen’s Houthi rebels attacked cargo ships in the Red Sea.

WTI Crude was down 0.50% at the time of writing on Tuesday, while Brent Crude traded down 0.36%.

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The Red Sea attacks prompted the United States to initiate an international naval operation to safeguard ships on the Red Sea route.

A number of other states and organisations are now enforcing their own initiatives in order to prevent any further attacks in the area from happening.

The Red Sea is bordered by the Bab al-Mandab Strait, also known as the Gate of Tears, in the south, near Yemen’s coast, and by the Suez Canal in the north. 

The sea serves as a crucial passage for transporting oil, consumer goods, and liquefied natural gas.

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The Houthis have been publicly stating that they will continue to monitor the Red Sea and attack all Israel-related ships.

“Even if America succeeds in mobilising the entire world, our military operations will not stop, no matter the sacrifices it costs us,” said Mohammed al-Bukhaiti, a senior Houthi official, in a post on Tuesday.

Where next for oil?

Also capping gains, “supply continues to outstrip demand, and this dynamic is forecast to continue into the new year,” said David Morrison, Senior Market Analyst at Trade Nation.

The front-month WTI briefly fell below $68 last week, reaching its lowest point since June of this year.

“This has held ever since, and crude has managed to rally off here, although not in the spectacular fashion that we saw in equities, precious metals, and bonds following the dovish Federal Reserve monetary policy announcement. In fact, a look at the chart tells us that oil’s gains have been hard-fought so far, which makes one wonder if they could be undone quite quickly,” stated David Morrison.

“But oil was very oversold, and bulls should be heartened knowing that the MACDs on the daily chart and all lower time frames are turning up quite neatly, building on the positive divergences that have developed since the beginning of this month. Fundamentally, supply continues to outstrip demand, and this dynamic is forecast to continue into the new year. But tankers are now avoiding the Red Sea due to an increase in Houthi drone and missile attacks from Yemen. That may also offer some support,” he added.

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