Global oil prices faced a downturn on Wednesday due to a strengthened U.S. dollar, impacting demand for dollar-denominated crude. Despite this, the escalating conflict in the Red Sea, leading to potential supply disruptions, mitigated the losses.
As of 0215 GMT, global benchmark Brent crude futures saw a decline of 36 cents, or 0.5%, settling at $77.93 per barrel. Concurrently, U.S. West Texas Intermediate crude futures (WTI) experienced a fall of 43 cents, or 0.59%, reaching $71.97 per barrel.
While Brent crude exhibited a modest rise on Tuesday, WTI faced a dip, reflecting investor concerns over weakening fundamentals in the U.S. However, ongoing naval and air conflicts in the Red Sea intensified worries about tankers having to reroute, raising costs and extending delivery times.
The U.S. dollar, nearing a one-month high on Wednesday, contributed to the decline in oil prices. The dollar’s strength diminishes demand for dollar-denominated oil among buyers using other currencies.
Daniel Hynes, Senior Commodity Strategist at ANZ Bank, attributed the falling oil prices to “slightly more hawkish comments from central bankers.” He noted, “The lack of response from the market to recent geopolitical risks suggests it is discounting the threat of supply disruptions. However, while no output has been lost so far, it is indirectly tightening in the market by pushing more supply onto the water.”
On Tuesday, the U.S. initiated fresh strikes against Iran-aligned Houthi militants in Yemen after a Houthi missile struck a Greek vessel in the Red Sea. Shell, a British oil major, suspended shipments through the Red Sea following the U.S. and UK strikes. In contrast, U.S. producer Chevron maintained its Red Sea routes.
Vivek Dhar, Director of Mining and Energy Commodities Strategist at the Commonwealth Bank of Australia, highlighted that while oil benchmarks might not immediately 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.