DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange resumed a rally during Tuesday's afternoon session, lifting international crude benchmark above $79 per barrel (bbl) amid reports suggesting shipping companies will continue to avoid transit through the Red Sea and instead send vessels around the southern tip of Africa, adding to concerns over new supply chain disruptions.

Market sources anticipate the Red Sea disruption to global oil trade won't get resolved quickly as more international companies choose to avoid the Bab al-Mandab Strait chokepoint in the aftermath of Houthi attacks on commercial vessels. The United States on Monday announced a multinational military coalition that consists of 10 countries to safeguard free and safe passage for commercial vessels, but many questions remain.

Will there be military convoys deployed to escort vessels through the treacherous waters?

Will naval ships engage in open combat with Houthi militias should they come in direct contact with the group?

Notably, several key players in the region, including Saudi Arabia and the United Arab Emirates, are absent from the newly formed coalition. Saudi Arabia had fought Houthi rebels for several years after their forces took control of Yemen in 2014, but in the past year, the kingdom has distanced itself from the ongoing civil war.

Alexander Saverys, CEO of the shipping company Euronav, told Bloomberg TV Tuesday morning that "unless we don't see military convoys to protect our vessels, we will continue to avoid the area."

The Red Sea has increased importance in global oil flow, with 8.8 million barrels per day (bpd) of crude oil transiting through the waterway in the first half of 2023, up from 4.9 million bpd two years ago, according to the U.S. Energy Information Administration. Suez Canal and Strait of Bab al-Mandab have become particularly important for Russian crude oil exports that rose from just 120,000 bpd in the two weeks leading up to the war in Ukraine to 1.7 million bpd over the recent six months.

Similarly, 4.4 million bpd of petroleum products, including gasoline, diesel and jet fuel, have been shipped during the first half of 2023 via the same chokepoint from the Asian and Middle Eastern refiners towards Europe and North America.

Also on Tuesday, oil traders await the release of weekly U.S. inventory reports, beginning with the industry survey conducted by the American Petroleum Institute scheduled for a 4:30 p.m. ET release, followed by official statistics from the EIA Wednesday morning.

A consensus of analysts and traders surveyed by the Wall Street Journal estimates U.S. commercial crude oil stockpiles likely declined for the third straight week through Dec. 15, while petroleum product supplies have risen. U.S. commercial crude oil stockpiles likely fell by 2.5 million bbl from the previous week to 438.3 million bbl following an 8.9 million bbl decline reported over the prior two weeks.

Gasoline stocks are expected to have risen by 700,000 bbl to 224.7 million bbl, according to the survey, while stocks of distillates, mostly diesel fuel, are seen to have increased by 700,000 bbl to 114.2 million bbl. Refinery capacity use likely increased by 0.5% to 90.4% following an unexpected decline the previous week.

NYMEX West Texas Intermediate futures for January delivery expired $0.97 higher at $73.44 bbl, with the new front-month February WTI contract settling the session with a $0.50 bbl premium. International crude benchmark Brent for February delivery added $1.28 bbl on the session for a $79.23 bbl settlement. NYMEX RBOB January futures advanced $0.0418 to $2.2008 gallon, and NYMEX ULSD January contract gained $0.0440 to $2.7168 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com.