Red Sea oil crisis grows

Oil rose after Iran sent a warship into the Red Sea in response to the U.S. Navy’s sinking of three Houthi boats over the weekend, stoking regional tensions as vessels continue to avoid the key waterway. Brent crude rose above $78 a barrel after falling 5% in the previous three sessions, while U.S. crude approached $73. The U.S. Navy said it was fired upon while responding to a distress call from a ship in the Red Sea, sinking three boats. State media said Iran entered the vital waterway on Monday in response. The gains in crude followed its first annual decline since 2020 after a turbulent year dominated by concerns about rising production outside OPEC+ and slowing demand growth. That was offset by bullish factors including the wars in Gaza and Ukraine, and signs that the Federal Reserve has stopped raising interest rates. A Houthi delegation met with officials in Tehran following the U.S. response to an attack on a Danish container ship. AP Moller-Maersk A/S has again suspended all Red Sea transit to assess the situation in the vital waterway. “The ongoing geopolitical tensions are expected to provide support for prices. The recovery in China is also a concern for oil traders as we head into 2024,” Priyanka Sachdeva, senior market analyst at brokerage Phillip Nova Pte in Singapore, said, referring to the Red Sea. Chinese stocks dragged Asian shares lower on the first trading day of the year after weaker-than-expected factory data and a speech by President Xi Jinping that highlighted the economic headwinds. The latest cuts by the Community of Petroleum Exporting Countries and its allies are set to take effect this quarter and could be extended further. Investors were generally wary of the Nov. 30 OPEC+ pledge to further cut production and were skeptical of its implementation.