HOUSTON: Oil jumped three per cent on Tuesday to its highest level this month, as further attacks on ships in the Red Sea prompted fears of shipping disruptions and on hopes of interest rate cuts that could boost economic growth and fuel demand.

Brent crude futures were up $2.41, or 3.1pc, at $81.48 a barrel by 11:52 a.m. ET (1652 GMT). US West Texas Intermediate crude rose by $2.36, or 3.2pc, to $75.92.

The rally, in thin trade with some markets closed for holidays, added to last week’s gains of about 3pc after Houthi attacks on ships worried investors and as the Israel-Hamas conflict showed no sign of easing.

“There’s plenty of geopolitical tensions today in terms of the Middle East ... and it has given some angst here to the security of the transit of oil and other goods,” said John Kilduff, partner with Again Capital LLC.

Explosions in the Red Sea off the coast of Yemen were reported on Tuesday after sightings of unmanned aircraft and missiles in two separate incidents, a British maritime authority said.Despite concern about the Middle East and the re-routing of ships, actual supply has not yet been affected. Maersk on Sunday announced the restart of shipping routes through the Red Sea, easing the concerns to some extent.

Shipping companies had stopped sending vessels through the Red Sea and imposed surcharges for re-routing ships. The Red Sea connects with the Suez Canal, a major shipping route used for about 12pc of global trade.

Germany’s Hapag-Lloyd will decide on Wednesday how it will proceed with its Red Sea routes after suspending shipments there, a spokesperson said on Tuesday. Oil also found support from expectations the Fed will cut interest rates next year. Lower interest rates cut consumer borrowing costs, which can boost economic growth and oil demand.

Published in Dawn, December 27th, 2023