Oil eases ahead of Christmas break on possible future Angola output increase

OIL prices eased on Friday (Dec 22) ahead of the long Christmas holiday weekend on expectations Angola could increase output after leaving Organization of the Petroleum Exporting Countries (Opec), but rose for the week on positive US economic news and worries Houthi ship attacks would boost supply costs.

Brent futures fell 32 US cents or 0.4 per cent to settle at US$79.07 a barrel, while US West Texas Intermediate (WTI) crude fell 33 cents or 0.5 per cent to settle at US$73.56.

That left both benchmarks up about 3 per cent for the week after gaining less than 1 per cent last week.

In the Middle East, more maritime carriers said they were avoiding the Red Sea due to attacks on vessels carried out by the Iranian-backed Houthi militant group, which says it is responding to Israel’s war in Gaza.

Major shippers Maersk and CMA CGM said they would impose extra charges linked to re-routing ships.

The attacks have caused disruptions through the Suez Canal, which handles about 12 per cent of world trade.

“Direct pauses to supply are not the only reason oil prices will be moved by the Red Sea situation; freight rates and insurance costs are increasing,” said PVM analyst John Evans about the impact of the disruption.

In Africa, meanwhile, Angola’s decision to leave Opec could open the way for Beijing to increase investment in the country’s oil and other sectors. Angola produces about 1.1 million barrels per day of oil.

“It will take time for Angola oil production to rise even if China moves in there in a big way,” said Phil Flynn, an analyst at Price Futures Group, noting that the US inflation data and Houthi attacks in the Red Sea should be more supportive of oil prices than any future increase in output from Angola.

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Oil prices slip as Angola decides to exit Opec

In Iraq, meanwhile, oil ministry spokesman Asim Jihad affirmed Iraq’s support for the Opec+ agreement and its commitment to voluntary oil cuts.

Opec+ includes OPEC and allies like Russia.

In the US, a key inflation reading came in softer than expected, boosting investor optimism that the US Federal Reserve would lower borrowing costs next year.

Lower interest rates cut consumer borrowing costs, which can boost economic growth and demand for oil.

Expectations that the Fed is more likely to cut interest rates next year also helped reduce the US dollar to its lowest since July against a basket of other currencies for a second day in a row.

A weaker dollar can boost oil demand by making the fuel more expensive for buyers using other currencies.

But all US economic news was not positive.

Sales of new US single-family homes dropped to a one-year low in November, but the unexpected decline is probably temporary amid a chronic shortage of previously owned homes, which has been supporting demand for new construction. REUTERS