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Oil prices up as Red Sea crisis weighs over US stock build

(Montel) Oil prices rose in early trading on Thursday as concerns about heightened attacks on commercial ships in the Red Sea outweighed the bearish pressure following a surprise build-up in US crude oil stockpiles.

The front-month contract for Brent crude North Sea oil was last seen up USD 0.64 at USD 77.44/bbl, while the WTI equivalent was USD 0.60 higher at USD 71.97/bbl.

Tensions in the Middle East have heightened after the US and UK hinted that they could take military action against Yemen’s Houthi rebels following dozens of attacks on vessels in the Red Sea since late November, according to media reports.

British and US warships destroyed a barrage of drones and missiles fired by the Iran-backed Houthis this week, the largest attack on Red Sea shipping to date. The Houthis claim they are targeting ships linked to Israel in response to the war on Hamas inside Gaza.

The Red Sea is linked to the Mediterranean via the Suez Canal – a major route for European energy deliveries. Oil prices have been highly sensitive to the attacks.

"Tension in the Middle East continues to grow with the Houthis launching a large missile and drone attack in the Red Sea," said analysts at ING bank. "The attack [this week] targeted both commercial vessels and warships, but reports suggest that there was no damage to vessels or injuries."

Christoper Lewis at FXEmpire said the "current complexity of the market", given the heightened geopolitical risks, meant that oil traders "need to be very cautious”.

Bearish US stock data
The bullish effect of the Middle East tensions was, however, limited by an earlier report by the US Energy Information Administration (EIA) showing a 1.3m barrel week-on-week increase in commercial crude oil inventories.

US total motor gasoline inventories also rose last week, by 8m barrels, EIA data showed.

The increase in inventories "spurred worries over the demand for fuel from the world’s largest economy, which has been ailing amid a lack of travel in the winter season", said Priyanka Sachdeva, senior market analyst at Philip Nova.

ING analysts pointed out that the 1.3m weekly increase in commercial crude inventories was "quite different" to the 5.2m barrel draw that the American Petroleum Institute, an industry group, reported the previous day.

The build was a result of crude oil imports falling by 0.65m bbl/day week on week and exports falling by 1.9m bbl/day, ING added.