Oil prices held steady amidst a broad risk-off sentiment, countering concerns about the Red Sea flare-up. Despite tensions in the Middle East and Iran’s bold move to deploy a warship, global benchmarks West Texas Intermediate and Brent struggled to regain ground after a 1.8% drop and a close below $76, respectively.
The prevailing risk-off sentiment stems from traders scaling back bets on major central banks’ interest-rate cuts, contributing to one of the most significant simultaneous slumps in stocks and bonds during the first trading session of the year. This broader market shift cast a shadow on the oil market as investors remained vigilant about developments in the Red Sea.
Iran’s decision to dispatch a warship to the Red Sea marks a bold challenge to US forces in a crucial trade route. This move may embolden Houthi militants, known for disrupting shipping in the waterway to protest geopolitical issues, particularly Israel’s invasion of Gaza. While geopolitical tensions are usually supportive of oil prices, the current risk-off sentiment appears to be a dominant factor.
In tandem with the Red Sea tensions, OPEC+ is set to resume regular oil market monitoring meetings with an online session in the first week of February, as reported by delegates. The Organization of the Petroleum Exporting Countries and its allies initiated a new round of production cuts this month. However, skepticism lingers among traders regarding the effectiveness of these cuts in preventing a global surplus, especially with increased output from non-OPEC+ members.
As the oil market navigates through the complexities of geopolitical tensions and broader market sentiment, uncertainties prevail. The delicate balance between supply and demand will likely dictate the trajectory of oil prices in the coming weeks.
