Oil prices showed little change on Wednesday as investors monitored developments in the Red Sea, with some major shipping companies resuming passage through the region despite ongoing attacks and broader tensions in the Middle East. Brent crude futures fell slightly, decreasing five cents or 0.1% to $81.02 per barrel by 04:15 GMT, while U.S. West Texas Intermediate crude dropped 12 cents or 0.2% to $75.45 per barrel. Both crude benchmarks ended Tuesday's session over two percent higher, driven by fears of shipping disruptions from attacks on vessels in the Red Sea, alongside rising hopes for interest rate cuts in the U.S., which could boost economic growth and fuel demand.
Despite ongoing attacks by the Iran-aligned Houthi group in Yemen, major shipping companies such as Danish Maersk and French CMA CGM have resumed passage through the Red Sea following the deployment of a multinational task force in the area. German company Hapag-Lloyd is expected to announce its decision regarding resumption of passage in the region on Wednesday.
The possibility of an extended Israeli military campaign in Gaza remains a key driver of market sentiment. Israeli Chief of Staff Herzi Halevi told reporters on Tuesday that the war in Gaza will continue "for several months."
Additionally, expectations that the U.S. Federal Reserve will begin cutting interest rates in 2024 have supported the market and limited declines in oil prices on Wednesday. Lower interest rates reduce borrowing costs, which can stimulate economic growth and increase oil demand.
A preliminary Reuters survey on Tuesday indicated that U.S. crude inventories were expected to decline by 2.6 million barrels last week, while distillate and gasoline stocks were likely to rise. Inventory reports from the American Petroleum Institute and the Energy Information Administration are expected today and tomorrow, respectively, a day later than usual due to the Christmas holiday.
