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On Wednesday, January 17, 2024, the price of Brent crude oil dropped by 0.5% to $77 per barrel. Simultaneously, the benchmark price for U.S. West Texas Intermediate crude futures (WTI) also experienced a decline of 0.59%, settling at $71.97 per barrel.
The decline in Brent crude oil prices is attributed to the appreciation of the U.S. dollar, leading to reduced demand for crude oil priced in dollars. However, this drop in prices was partially offset by the increasing risks of supply disruptions in the Red Sea due to intensifying conflicts.
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Reports indicate that the U.S. initiated fresh strikes against Iran-aligned Houthi rebels in Yemen, responding to a Houthi assault on a Greek vessel in the Red Sea. This ongoing conflict has contributed to a modest rise in global crude oil prices due to concerns about potential disruptions to the oil supply.
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Despite the Red Sea conflict, the upward momentum of oil prices faced a setback on Wednesday as the U.S. dollar approached a one-month peak. This followed remarks from U.S. Federal Reserve officials expressing resistance to expectations of significant interest rate cuts. The stronger dollar has diminished demand for dollar-denominated oil, particularly for buyers using other currencies.
Daniel Hynes, a senior commodity strategist at ANZ Bank, noted that the market seemed to discount the geopolitical risks, suggesting a lack of response to potential supply disruptions. However, he highlighted the indirect tightening effect on the market, as the conflict pushes more supply onto the water.
The Red Sea attacks has disrupted global trade along a vital route connecting Europe and Asia, constituting around 15% of the world’s maritime traffic. Despite the impact on demand dynamics in the global market, the conflict has somewhat countered the effect of the stronger U.S. dollar on crude oil prices.
In response to the Red Sea attacks, the United States and Britain carried out strikes against Houthi military targets in Yemen. This retaliation aimed to address attacks by the Iran-backed group on shipping in the Red Sea since late last year. Shell suspended shipments through the Red Sea, while Chevron continued its routes in the region.
Vivek Dhar, director of mining and energy commodities strategist at the Commonwealth Bank of Australia, noted that while oil benchmarks may not fully reflect the Red Sea attacks, the realized price for oil and oil products for consumers has increased due to disruptions in trade flows through the Red Sea and Suez Canal.
A Bloomberg survey revealed that OPEC crude oil production remained steady at an average of 28.05 million barrels per day in December 2023. Nigeria increased output by an additional 50,000 barrels per day, compensating for reductions from countries like the United Arab Emirates and Angola. The latest data from the Nigerian Upstream Petroleum Regulatory Commission indicates a daily oil production of 1.25 million barrels in the country.
OPEC+ projected that Nigeria would produce 1.5 million barrels per day in 2024, while the federal government expressed confidence in the potential to reach 2 million barrels per day this year.
