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Oil prices decline following surge to highest levels since December

Red Sea disruptions and global tensions raise supply chain concerns
Oil prices decline following surge to highest levels since December
Brent crude futures saw a 0.44 percent decrease, settling at $82.07 per barrel

Oil prices experienced a robust surge of about 3 percent on Thursday, reaching their highest level since December. However, the market witnessed a decrease in prices today, Friday. By 6:23 AM GMT, Brent crude futures saw a 0.44 percent decrease, settling at $82.07 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) recorded a 0.67 percent decrease, settling at $76.84.

The surge in oil prices earlier this week can be attributed to multiple factors, including the release of faster-than-expected U.S. economic growth data for the last quarter and escalating tensions in the Red Sea disrupting global trade.

Supply chain concerns

The spotlight on geopolitical tensions intensified as tensions in the Red Sea corridor forced two Maersk ships to retreat. These vessels, carrying U.S. military supplies, were transiting the Bab al-Mandab Strait off Yemen. Therefore, analysts are expressing growing concerns about the prolonged disruptions to the global supply chain.

Moreover, tensions between Ukraine and Russia are on the rise with Ukrainian targeting an oil refinery in southern Russia. This further fueled worries about oil supply and pushed prices up. Analysts noted that this incident contributed to the apprehensions surrounding the global oil market, emphasizing the fragility of the current geopolitical landscape.

U.S. economic growth

The U.S. economy’s faster-than-expected growth in the fourth quarter served as a positive demand indicator for oil. Additionally, a larger-than-expected draw in U.S. crude inventories last week, primarily due to extreme cold weather, provided further support to oil prices. Thus, U.S. inventories fell by 9.2 million barrels, according to the Energy Information Administration.

Read: Gold prices fall, market awaits GDP and inflation data

China’s economic recovery

Oil prices found additional support from the expectation of China’s economic recovery, following a deep cut in bank reserves. Analysts have been anticipating economic stimulus from China for months. Therefore, the bank reserves could be a potential boost to oil demand. However, concerns loom as the European Central Bank retained its record-high benchmark interest rate of 4 percent, hinting at the prospect of sustained high interest rates globally.

The complex interplay of geopolitical tensions, disruptions in key shipping routes, and economic factors has made oil prices volatile, creating an inconsistent environment with implications for global markets. As the situation continues to evolve, stakeholders across industries will be closely monitoring developments for their potential impact on the energy sector and beyond.

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