A fresh escalation of violence in the Middle East pushed oil prices higher early on Thursday, even after Wednesday's session ended with losses for both WTI and Brent.
Those losses were driven by an unexpected build in U.S. crude oil inventories and another round of substantial builds in fuel inventories.
However, also on Wednesday Israel stepped up its attacks on Gaza and the Yemeni Houthis carried out what UK Defence Secretary Grant Shapps called the largest attack in the area yet.
Per media reports citing U.S. Central Command, the U.S. and UK forces in the Red Sea shot down 21 drones and missiles on Tuesday. The Houthis' military spokesman, Yahya Saree, said they had attacked a U.S. military ship because it was "providing support" to Israel.
"Oil prices seem to be in a state of indecision this week, as market participants attempt to digest a confluence of factors," IG analyst Yeap Jun Rong told Reuters.
"It's an uneven tug-of-war between a bearish global oil demand-supply outlook and a supportive, albeit fleeting, risk premium from the Red Sea attacks and tensions," Vandana Hari from Vanda Insights told Bloomberg. "Sentiment appears more predisposed to panicky selling than protective buying."
The news outlet reported that the Houthi attacks had reduced the number of tankers passing through the Bab el-Mandeb strait off the coast of Yemen by a third. This must be a very recent development, however, since Reuters reported earlier this week that in December there was no palpable change in tanker movements in the area.
"We haven't really seen the interruption to tanker traffic that everyone was expecting," Lloyd's List shipping analyst Michelle Wiese Bockmann told Reuters.
The Houthis have not targeted tankers so far. Yet the danger of this changing prompted some oil traders such as BP and Equinor to reroute their vessels away from the Red Sea.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More