WTI moves back to near $78.30 after marking monthly highs as Red Sea tension escalates

West Texas Intermediate (WTI) oil price extends its gains for the fourth consecutive session, trading higher near $78.30 per barrel on Monday, by the press time. WTI prices reached the monthly peak at $79.19 during the early Asian hours but have since pared some of their intraday gains. However, the surge in Crude oil prices was driven by concerns about potential supply disruptions following a missile attack on a fuel tanker in the Red Sea.

Moreover, on Sunday, a drone attack targeted a United States (US) outpost in Jordan, near its border with Syria, resulting in the tragic death of three US service members and leaving at least 24 others injured. Reports indicate that both the administration of US President Joe Biden and the US military are actively developing specific plans to address this attack. Among the potential measures being considered, there is the serious prospect of carrying out strikes in Iran, representing a significant escalation if such actions are implemented, which in turn, may act as a tailwind for the Crude oil prices.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) are scheduled to hold an online conference on February 1, where they may make decisions regarding further output policies. Currently, OPEC+ has collectively committed to voluntary output cuts of approximately 2.2 million barrels per day (bpd) for the first quarter, with Saudi Arabia leading by maintaining a 1 million bpd voluntary reduction. However, Gazprom Neft, a major Russian oil producer, holds the view that there is no necessity for additional cuts in oil supply by OPEC+ members. Meanwhile, the prognosis for Russian refined products exports is anticipated to decrease due to ongoing repairs at several refineries following drone attacks.

Crude oil prices might have received upward support, partially fueled by the better-than-expected GDP Annualized (Q4) data released from the United States last week. Another contributing factor to the strength in Crude oil prices is speculation surrounding the People's Bank of China (PBoC) contemplating a potential cut in the Medium-term Lending Facility (MLF) rate, given that China, as the largest oil importer, wields a substantial influence on global oil markets.