Oil prices rise amid fears over escalating tensions in Middle East

Pumpjacks are seen against the setting sun at the Daqing oil field in Heilongjiang province, China December 7, 2018. Picture taken December 7, 2018. REUTERS/Stringer/file photo

TOKYO (Reuters) – Oil prices rose in early Asian trade on Thursday as persistent fears over escalating tensions in the Middle East outweighed easing concerns about transport disruptions as some global shipping firms said they were returning to the Red Sea route.

Brent crude futures climbed 20 cents, or 0.3%, to $79.85 a barrel by 0133 GMT. U.S. WTI crude futures were up 24 cents, or 0.3%, at $74.35 a barrel.

Prices dropped nearly 2% on Wednesday as major shipping firms began returning to the Red Sea.

“Concerns about shipping in the Red Sea have eased, but continued worries about tensions in the Middle East, especially on Iran’s involvement in the region, make it difficult to sell further,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.

“The market is likely to try the upside again… maybe in the early new year, also on expectations of a recovery in fuel demand thanks to monetary easing in the United States and higher kerosene demand during the winter in northern hemisphere,” he said.

Danish shipping company Maersk said it has scheduled several dozen container vessels to travel via the Suez Canal and Red Sea in the coming weeks after calling a temporary halt to those routes this month after attacks by Yemen’s Iran-backed Houthi militia.

But the prospect of a prolonged Israeli military campaign in Gaza and the spillover of the conflict to attacks on ships in the Red Sea remain major drivers of market sentiment.

Israeli forces pummelled central Gaza by land, sea and air on Wednesday, a day after Israel’s chief of staff, Herzi Halevi, told reporters the war would go on “for many months”.

Growing expectations that key central banks such as the Federal Reserve will start to cut interest rates early next year also lent support. Lower interest rates reduce borrowing costs, which can stimulate both economic growth and oil demand.

The market showed little reaction to the build in U.S. crude stockpiles last week.

U.S. oil inventories rose by 1.84 million barrels in the week to Dec. 22, according to market sources citing American Petroleum Institute figures on Wednesday, against an estimated drop of about 2.7 million barrels in a poll of seven analysts by Reuters.

U.S. government data on stockpiles is due on Thursday, delayed by a day due to the Christmas holiday on Monday.

READ MORE: Oil drops almost 2% as investors watch Red Sea developments

Fuel prices up by more than P1 in the last week of Dec. 2023