Oil holds drop near $70 as new-year gloom counters Red Sea risks

Oil held onto an early-year drop as trader optimism about interest rate cuts faded, undermining concerns about escalating conflict in the Red Sea, Bloomberg reporetd.

US benchmark West Texas Intermediate fell below $70 a barrel. Traders are paring back bets on the scale of interest-rate cuts from major central banks, leading to one of the worst-ever concerted slumps in stocks and bonds in a year’s first session.

The shift in broader market sentiment outweighed developments in the Middle East. Even so, oil flows have been relatively lightly affected so far.

Traders are assessing whether strong non-OPEC supply will remain a dominant oil-market theme in again 2024. Higher output from outside of the producer group has so far countered its efforts to tighten the market — but extended curbs take effect this week.

“There’s not really any disruption to the physical supply in the market,” Neil Beveridge, a senior analyst at Sanford C Bernstein, said on Bloomberg Television. “Markets look fairly balanced coming into the year, so it leaves OPEC with quite a lot of work to do to support prices at current levels.”

In another sign, the crude market remains amply supplied; nearby timespreads for the global Brent benchmark flipped into a bearish contango structure on Wednesday. The pattern, where nearby prices are cheaper than later ones, tends to indicate a surplus.

Still, the fragility of some supplies remained in focus. Output at Libya’s Sharara field fell by about 30,000 barrels a day this week as a result of protests in the country.