Oil rose 3 per cent on Monday as mounting attacks by the Iran-aligned Yemeni Houthi militant group on ships in the Red Sea disrupted maritime trade.
A Norwegian-owned vessel was attacked in the Red Sea on Monday and oil major BP said it has temporarily paused all transits through the body of water. Other shipping firms said over the weekend that they would avoid the route.
Brent crude futures were up $2.33, or 3.1 per cent, to $78.88 a barrel by 11:20 a.m. ET (16:20 GMT), while U.S. West Texas Intermediate crude rose $2.27, or 3.2 per cent, to $73.68.
Both crude benchmarks posted small gains last week, following seven weeks of decline, after a U.S. Federal Reserve meeting raised hopes that the U.S. central bank’s interest rate hikes are over and cuts are on the way.
“BP’s decision to halt shipping through the Red Sea may have crystallized concerns for the oil market,” said Tim Evans, an independent oil analyst at Evans on Energy.
“The re-routing of tankers does add cost and it does add transit time, so we are seeing... fewer barrels arriving at European refineries in the near term,” Evans added.
About 15 per cent of world shipping traffic transits via the Suez Canal, the shortest shipping route between Europe and Asia.
Ample oil supply limited price gains on Monday. Brent and U.S. crude from prompt delivery traded at a discount to future deliveries, signaling a well-supplied physical market.
Also adding support, Russia said on Sunday it would deepen oil export cuts in December by potentially 50,000 barrels per day or more, earlier than promised, as the world’s biggest exporters try to support global oil prices.
Russia announced the deeper export cuts after it suspended about two-thirds of loadings of its main export grade Urals crude from ports due to a storm and scheduled maintenance on Friday.
Markets may also be seeing some short covering, Evans added. Money managers cut their net long U.S. crude futures and options positions in the week to August 8, the U.S. Commodity Futures Trading Commission said on Friday.