DTN Oil

WASHINGTON (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange advanced more than 2% on Tuesday in reaction to breaking news indicating Iran has sent a warship into the Red Sea following U.S. attacks on Houthi fighters over the weekend, ratcheting up geopolitical tensions in the volatile region.

The U.S. navy destroyed three ships carrying Houthi militants supported by Iran on Sunday after a Maersk-owned container ship came under attack from their forces late Saturday.

The Houthi, based in Yemen, have been attacking vessels passing through one of the world's busiest shipping routes to protest Israel's actions against Hamas. The risk is that the Israel-Hamas war, which has so far been contained, could morph into a wider regional conflict involving some of the biggest oil producers.

Shipping companies were increasingly rerouting transit between Europe and Asia away from the Suez Canal to around the Cape of Good Hope, adding 3,500 nautical miles and more than a week to the journey. On Dec. 19, the United States announced the formation of Operation Prosperity Guardian, a 10-country maritime coalition, to provide security for commercial shipping in the region. The maritime force along with increased naval presence by countries such as India that are not part of the coalition gave some shipping companies the confidence to return to scheduling voyage through the Red Sea, pressuring oil futures.

Geopolitical risk is expected to underpin higher crude prices in 2024, as the attacks in the Red Sea could again ramp up, and the Houthis could target oil fields in Saudi Arabia from their bases in Yemen. Moreover, there have been numerous attacks in Iraq and Syria on U.S. forces that could escalate, while Israel has warned Lebanon that it would attack Hezbollah, a terrorist group also funded by Iran, if their missile attacks into northern Israel do not stop.

Near 9:00 a.m. EST, ICE March Brent futures advanced $1.41 to trade at $78.35 barrel (bbl), and NYMEX February WTI futures moved up $1.40 to near $73.02 bbl. NYMEX February ULSD future added $0.0491 to trade near $2.5768 gallon, while NYMEX January RBOB futures advanced $0.0484 to $2.1543 gallon.

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