Oil jumped over 2 per cent on Tuesday to the highest in almost a month, supported by Middle East strife and investor optimism that the US Federal Reserve would soon start cutting interest rates, boosting global economic growth and fuel demand.
The rally, in thin trade with some markets closed for public holidays, added to last week’s gains of about 3 per cent after Houthi attacks on ships disrupted global shipping and trade while the Israel-Hamas conflict shows no sign of easing.
Brent crude futures were up by $1.79, or 2.3 per cent, at $80.86 a barrel by 1453 GMT and earlier reached $81.23, the highest since December 1. US West Texas Intermediate crude rose by $1.89, or 2.6 per cent, to $75.45.
Despite concern about the Middle East and the re-routing of ships, actual supply has not yet been affected. Maersk on Sunday announced the restart of shipping routes through the Red Sea, easing the concerns to some extent.
“The lack of oil supply disruptions is offsetting the support to prices from ongoing geopolitical tensions in the Middle East,” said UBS analyst Giovanni Staunovo.
Shipping companies had stopped sending vessels through the Red Sea and imposed surcharges for re-routing ships. The Red Sea connects with the Suez Canal, a major shipping route used for about 12 per cent of global trade.
Germany’s Hapag-Lloyd will decide on Wednesday how it will proceed with its Red Sea routes after suspending shipments there, a spokesperson said on Tuesday.
Two explosions in the Red Sea were reported by a vessel sailing off the coast of Yemen on Tuesday shortly after two unmanned aircraft were sighted, a British maritime authority said.
An Israeli minister hinted on Tuesday that the country had retaliated in Iraq, Yemen and Iran for attacks carried out against it as the war with Hamas-led Palestinian militants in the Gaza Strip widens to other areas of the region.
Separately, the UN nuclear watchdog said Iran has reversed a months-long slowdown in the rate at which it is enriching uranium to up to 60 per cent purity, close to weapons grade.
Oil also found support from expectations that the Fed will cut interest rates next year. Lower interest rates cut consumer borrowing costs, which can boost economic growth and oil demand.