Oil prices have increased due to the escalation in the Red Sea.

 

Oil prices increased on Friday as the United States and United Kingdom conducted a strike against Iran-backed Houthi rebels in the Red Sea region. Global stocks exhibited mixed performance at the onset of the corporate earnings season.

Crude prices surged by over 4 percent but moderated somewhat after the allied forces initiated lethal strikes in response to weeks of disruptive rebel attacks on Red Sea shipping. Bjarne Schieldrop, the chief commodities analyst at SEB bank, expressed concerns about the region's unpredictable escalation and the potential loss of oil supply in the future.

He highlighted the risk that if the US-UK attacks failed to destroy Houthi weapons, and oil tankers were forced to circumvent Africa, up to 80 million barrels could be stranded in transit, causing prices to rise by as much as US$5-$10 per barrel.

The Houthi rebels have increasingly targeted vessels in the Red Sea, a crucial international shipping route, since the Gaza war erupted in October. These attacks have disrupted trade flows at a time when global supply constraints are exerting upward pressure on inflation.

During Friday's trading, the Dow experienced a decline, while the S&P 500 saw a modest increase as investors absorbed corporate earnings reports and a surprising decrease in wholesale inflation. Major banks, impacted by a slew of quarterly results, trended lower, and airlines faced a downturn following disappointing forecasts from Delta.

Investors displayed optimism regarding potential interest rate cuts, with a focus on robust earnings. Tokyo and European stock markets concluded the week with notable gains.

The luxury sector drew attention as British fashion brand Burberry issued a profit warning, leading to a more than 9 percent decline in its share price in London.

Investors eagerly awaited interest rate reductions, considering previous hikes by central banks in 2022 and 2023 aimed at curbing persistently high inflation. Despite a slowdown in the rate of price increases, inflation remained above target for the US Federal Reserve, the European Central Bank, and the Bank of England.