With the holidays here, Canadians are set to hit the road to meet up for family gatherings.
However, the price at the pump could play the role of the Grinch as oil prices rise given the current geopolitical uncertainty exacerbated by recent attacks on commercial vessels in the Red Sea.
“It’s very traditional that oil prices and gasoline prices bottom around the middle of December,” said Tom Kloza, global head of energy analysis with the Oil Price Information Service.
“Then after that … the market will grab pieces of news to justify price advances.”
Houthi strikes on commercial vessels in the Red Sea are part of the Yemen-based group’s attacks on Israel and countries trading with it. Israel is fighting Hamas in Gaza following that group’s deadly Oct. 7 surprise attack in Israel.
The Houthis’ actions have echoed the role of the Iran-backed Lebanese group Hezbollah, which has been attacking Israeli positions at the Lebanese frontier, and Iraqi militias which have been firing at U.S. interests in Iraq and Syria.
Stepping up their threats, the Houthis said on Dec. 9 they would target all ships heading to Israel, regardless of nationality, and warned all international shipping companies against dealing with Israeli ports.
An estimated 10 to 12 per cent of the world’s trade travels through the Red Sea, a narrow waterway that separates Yemen from East Africa and leads north to the Suez Canal. It is the shortest shipping route between Europe and Asia.
Houthis’ attacks have forced the world’s biggest container shipping companies to either pause or reroute movements through the Red Sea.
Hapag Lloyd, MSC and Maersk, oil major BP and oil tanker group Frontline have said they sending their ships to southern Africa’s Cape of Good Hope, which some analysts have said could add a week to 10 days or even longer to voyages.
Depending on what companies decide to do, they will have to add more ships to make up the extra time or burn more fuel for the longer journey, said Simon Heaney, senior manager of container research for Drewry, a maritime research consultancy.
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“The impact will be longer transit times, more fuel spent, more ships required, potential disruption and delays — at least in the first arrivals in Europe,” he told The Associated Press on Monday, adding that brings up the cost of shipping.
Oil prices have hit their highest level recently, gripped by worries about disruptions in the Red Sea.
Oil giant BP said on Monday that it has “decided to temporarily pause” its transits, describing it as a “precautionary” move because crew safety is the priority.
West Texas Intermediate oil, one of the main global oil benchmarks, was trading close to US$75 per barrel around noon Wednesday, up from a month-low of US$68 per barrel on Dec. 13.
The U.S. has created a multinational operation to safeguard commerce in the Red Sea. A government official told Global News on Monday that Canada will be deploying “a handful of personnel” to the region “in the coming days” as part of the mission dubbed Operation Prosperity Guardian.
The impact on global trade will depend on how long the crisis persists, analysts have said.
However, it’s going to be “very hard” to quantify what impact the Red Sea crisis may have on gas prices, said Opher Baron, professor of operations management at the University of Toronto.
“Oil is a global commodity, and an increase in price in Europe implies an increase in price in Canada. There is certainly potential impact for us, but it’s very hard to quantify what this impact is going to be, especially because it really depends on how successful Operation Prosperity Guardian would be,” he said.
“If it succeeds, hopefully we will not see much of an impact. If it fails and the situation there escalates to another war in this area, the impact can be quite substantial.”
Goldman Sachs said on Monday that given vessels can be redirected, the disruption to energy flows in the Red Sea is unlikely to have large effects on crude and liquefied natural gas prices.
“We do estimate that a hypothetical prolonged redirection of all seven million barrels per day of gross (Northbound and Southbound) oil flows would raise spot crude prices relative to long-dated prices by US$3-4/per barrel,” the investment bank said.
The national average price of gas across Canada was $1.42.2 per litre on Tuesday, up from a month-low of $1.40.2 a litre on Dec. 15, Gasbuddy.com data showed. Gas prices are going to go up in the coming months because oil prices typically turn a corner this time of year, Kloza said.
The Red Sea crisis it plays into the nature of a wider theatre of war, he said, and is among several factors impacting the market.
“We saw crude oil prices probably hit a winter bottom last week, along with North American gasoline prices. Both have rebounded significantly from then, and we’re on the threshold of winter, which in the northern hemisphere sees a lot of molecules that might be used for diesel go into heating purposes and so forth,” Kloza said.
“We are going to see crude oil prices rebound, and a typical rebound is going to take them up by about US$15 or US$20 a barrel in the first 100 days of 2024. A typical gasoline rally might add something on the order of 30 to 40 per cent as well. What you’re looking at right now probably reflects some of the better prices you’re going to see for the next six to nine months or so, and then we’ll see what happens when we get into the summer driving era.”
— with files from Reuters and The Associated Press
© 2023 Global News, a division of Corus Entertainment Inc.
