OIL FUTURES: Crude pushes to six-session high as market braces for potential long-term Red Sea disruptions

Crude oil futures settled at a six-session high on on Jan. 5 amid concerns that rising Middle East tensions could portend potential long-term disruptions to Red Sea vessel traffic.

NYMEX February WTI settled up $1.62 at $73.81/b and ICE March Brent climbed $1.17 to end the session at $78.76/b.

A.P. Moller-Maersk will divert its ships from the Red Sea and Gulf of Aden to the Cape of Good Hope for "the foreseeable future," the company said Jan. 5 after Iran-backed Houthi rebels launched a new type of attack on international shipping using unmanned surface vessels. The decision of the shipping line, one of the world's largest, suggests a prolonged impact on seaborne container transportation from heightened regional security risks.

"Energy markets appear significantly underpriced for the ongoing rise in geopolitical risks," TD Securities Senior Commodity Strategist Daniel Ghali said in a note. "Escalating military interventions in the Middle East suggest additional upside convexity."

Diverted Red Sea traffic made South African bunker calls climb 80% in the week ended Jan. 4, S&P Global Commodity Insights data shows, while ports across West and East Africa catered to rising demand.

Northeast Asia's major energy importers were increasingly concerned about potential supply risks due to rising tensions in the Middle East amid the escalation of attacks by Houthi rebels on commercial shipping in the Red Sea.

"We are most concerned about any further deterioration of the Middle East situation, which we seriously need to monitor closely because Japan in particular has extremely high Middle East dependency [for oil supply]," Petroleum Association of Japan President Shunichi Kito told reporters Jan. 5 on the sidelines of the PAJ's New Year reception in Tokyo.

The Middle East accounted for 94.6% of Japan's crude oil imports in November, with Saudi Arabia accounting for 42.7% of the total supply, including 1.17 million barrels of super light crude, according to preliminary data from Japan's Ministry of Economy, Trade and Industry.

Oil prices were further buoyed by a strong US employment report, which eased fears of a near-term slowdown in US refined product demand. Employers added 216,000 jobs in December, Labor Department data showed Jan. 5, up 43,000 from the month prior and far-exceeding market expectations.

NYMEX February RBOB slipped 46 points to settle at $2.1055/gal, while February ULSD climbed 2.01 cents to $2.6085/gal.

US refined product inventories moved sharply higher in the week ended Dec. 29 amid slack holiday-week demand, US Energy Information Administration data showed Jan. 4.

"This development raises concerns about a potential disconnect between the market's Goldilocks narrative and actual gasoline demand, especially when considering gasoline demand as a forward indicator of economic activity," SPI Asset Management's Managing Partner Stephen Innes said.