Oil Drops More Than 1%, Despite Middle East Conflict

• Oil prices lost more than 1% last Monday as the Middle East conflict's limited impact on crude output prompted profit taking after oil benchmarks gained 2% last week.
• Several tanker owners steered clear of the Red Sea, and multiple tankers changed course on Friday after the U.S. and Britain launched strikes against Houthi targets in Yemen. The strikes started after the Iran-backed group's attacks on shipping in response to Israel's war against Hamas in Gaza. The conflict has also held up at least four liquefied natural gas tankers travelling in the area.
• "The realization that oil supply has not been adversely impacted is leading last week's bulls to take profit, with the move down somewhat exacerbated by a slightly stronger dollar," said Tamas Varga of oil broker PVM.
• On Sunday, the Houthi militia threatened a "strong and effective response" after the United States carried out another strike overnight. The U.S. later said it shot down a missile fired at one of its ships from Yemen. The chief negotiator for Yemen's Houthis on Monday warned that attacks on ships headed towards Israel will continue.
• "As the Middle East conflict is currently not affecting oil production, the geopolitical risk premium priced in oil prices now appears modest based on the implied volatility of options," Goldman Sachs analysts said in a note.
• There have been no oil supply losses so far, but the shipping disruption is indirectly tightening the market by keeping 35Mn barrels at sea. This is owed to longer journeys shippers have to take to avoid the Red Sea, Citi analysts wrote. In Libya, people protesting against perceived corruption threatened to shut down two more oil and gas facilities after shutting the 300,000 barrel per day in the Sharara field on January 7.

(Source: Reuters)