Oil Prices React to Attack on U.S. Base in Jordan

Introduction

Oil prices experienced volatility on Monday after a surge over the weekend. The increase in prices followed an attack on a base in Jordan, resulting in the deaths of three U.S. servicemen. This incident marked the first time American troops were killed in the latest conflict in the Middle East. The United States identified the drone strike as being carried out by an Iran-backed militia and vowed to retaliate.

Concerns of Wider Conflict and Oil Supply Disruption

Since the commencement of hostilities on October 7th, when Hamas attacked Israel, investors have been concerned about the potential escalation of the war. Such a development could jeopardize oil supplies from the region, which is home to some of the world's largest producers.

Denial of Involvement by Iran

Iran has denied any involvement in the strike that occurred in Jordan. Nevertheless, tensions in the area continue to rise.

Houthi Rebels' Targeting of Shipping Vessels

In addition to the conflict in Jordan, Houthi rebels based in Yemen persistently attack shipping vessels in the Red Sea. The United States and its allies have retaliated by targeting militant strongholds in an effort to safeguard global trade.

Adverse Impact on Oil Flows and Trade

Goldman Sachs' strategists estimate that since the start of the shipping attacks in December, oil flows through the Bab El Mandeb Strait at the southern end of the Red Sea have declined by approximately 1.2 million barrels per day. This reduction has significant consequences for both oil and non-oil trade. For example, roughly 20% of imported clothes and shoes in the United States utilize the Suez Canal, while in Europe, 40% of clothes and 50% of shoes pass through the Red Sea route.

Current Oil Prices and Stocks

In terms of oil prices, West Texas Intermediate, the U.S. benchmark, increased by 0.1% to $78.06 per barrel. Meanwhile, Brent crude, the international standard, rose by 0.1% to $83.60 per barrel. Both contracts registered a gain of approximately 6% during the previous week.

Oil stocks experienced mixed results during premarket trading. Exxon Mobil remained unchanged, while Chevron fell by 0.3%. On the other hand, the American depositary receipts of Shell and BP rose by 0.3% and 0.6% respectively.