Oil prices fell on Tuesday, reversing earlier gains, as worries about excess supply and sluggish demand growth overshadowed rising security risks in the Middle East after a missile attack by the Iran-backed Houthis on a tanker.
The Houthis, who control most of northern Yemen, claimed responsibility for launching a cruise missile from their territory that hit a commercial chemical tanker, causing fire and damage but no casualties. The attack was the latest in a series of incidents that have heightened safety concerns for tankers in vital shipping lanes.
The tanker, owned by Norwegian company Odfjell, was carrying caustic soda and was on its way from Jubail in Saudi Arabia to Singapore, according to a statement from the company. Odfjell said the fire was quickly extinguished and the crew was safe.
According to a report by Reuters, the incident came amid high tensions between Iran and its regional rivals, especially Saudi Arabia, which leads a military coalition that has been fighting the Houthis since 2015. Iran denies arming the Houthis, but the United Nations and Western powers have accused it of supplying them with weapons and missiles.
Oil Market Under Pressure
Despite the attack on the tanker, oil prices were under pressure from concerns about oversupply and slowing demand growth, as the world struggles to recover from the economic fallout of the coronavirus pandemic.
Brent crude futures for February dropped 0.7% to $75.47 per barrel by 1257 GMT, while U.S. West Texas Intermediate crude futures for January delivery slipped 0.7% to $70.85.
“Sentiment remains negative,” said Tamas Varga of broker PVM. “There is no help coming from the demand side of the oil equation. The fundamental backdrop is discouraging.”
Global oil demand growth is set to slow in 2024, with the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) differing on the extent. Both OPEC and the IEA will update their forecasts this week.
Climate Talks in Focus
Another factor weighing on oil prices was the ongoing climate talks at the COP28 summit, where negotiators are awaiting a new draft deal after many countries criticised a previous version as too weak because it omitted a “phase-out” of fossil fuels.
Oil producers and consumers are facing increasing pressure to reduce their reliance on fossil fuels and shift to cleaner energy sources, as the world faces the threat of catastrophic climate change.
However, some experts and industry leaders have argued that oil and gas will still play a vital role in the global energy mix for decades to come and that investment in new technologies and infrastructure is needed to make them more efficient and less polluting.
