Oil Slips Below $76 as Traders Weigh Fed and Red Sea Risks

Commodity I December 18, 2023


Oil dipped below $76 a barrel in London as traders weighed a pushback by the Federal Reserve against aggressive interest-rate cuts, while shipping risks rose in the Red Sea.

Red sea tension plunging oil

Global benchmark Brent fell after earlier adding 1.2%. Egypt’s Suez Canal Authority is “closely following” tensions in the region after the US said it shot down 14 drones launched from Iran-backed Houthi-controlled areas of Yemen. Major shipping lines have been diverting away from the area, while some tanker companies are insisting their ships be allowed to avoid the Red Sea.

Crude has dropped more than 20% from its late-September high and is down 10% for the year amid surging US shale supply and skepticism over promised OPEC+ output cuts. A shifting outlook for Fed rate policy has also seen prices swing, with officials recently pivoting away from bets of aggressive cuts next year.

Crude Market

Wall Street is now least bullish

Hedge funds are now the least bullish they’ve been in data going back to 2011, though Wall Street analysts see some scope for prices to rebound next year.

“The key focus remains on supply, with US crude production hitting fresh records into the end of the year,” said Robert Rennie, head of commodity and carbon research at Westpac Banking Corp. “It’s uncertain if increased tensions in the Red Sea will have a material influence on oil prices, although the cost of logistics and shipping will rise.”

Goldman Sachs Group Inc., previously among the biggest bulls, has cut its forecast range for Brent in 2024 by $10 to $70-$90 a barrel. The bank also boosted its outlook for US oil supply growth to 900,000 barrels a day from 500,000.