In a turbulent week for the oil market, global prices have witnessed a significant uptick, marking their second consecutive weekly gain. The surge is attributed to escalating tensions in the Middle East, triggered by recent Houthi attacks on ships in the Red Sea.

However, uncertainties loom over OPEC's effectiveness in stabilizing prices following Angola's decision to exit the organization.

Brent crude

As of today, Brent crude is trading at $79.54 per barrel, reflecting a 0.54% increase, while West Texas Intermediate (WTI) crude stands at $74.42 per barrel, up by 0.69%.

Both benchmarks have witnessed a cumulative gain of over 3.3% throughout the week, with concerns intensifying over a potential supply shortage.

Market analysts, such as Leon Li from CMC Markets in Shanghai, suggest that oil prices may experience a rebound due to ongoing geopolitical conflicts and the imminent implementation of OPEC's production cuts.

Li predicts a small supply gap in January next year, potentially driving WTI crude oil prices to the range of $75-$80 per barrel.

Maritime concerns aggravate supply disruptions

The recent attacks by the Yemeni Houthi militant group in support of Palestinians have led to increased avoidance of the Red Sea by maritime carriers. Major companies, including Germany's Hapag-Lloyd and Hong Kong's OOCL, have opted to reroute ships or suspend sailing, contributing to global trade disruptions through the Suez Canal— a vital route handling about 12% of worldwide trade.

In response to the escalating situation, the U.S. initiated a multinational operation on Tuesday to safeguard commerce in the Red Sea. However, the Houthi militant group has vowed to continue their attacks, emphasising the challenges in fully mitigating the impact on oil supply. Analysts note that the majority of Middle East crude is still primarily exported via the Strait of Hormuz.

Adding a layer of uncertainty to the oil market, Angola's decision to exit OPEC has raised questions about the organization's ability to effectively address challenges.

The move comes after Angola protested a decision by the broader OPEC+ group to reduce the country's oil output quota for 2024. The producer group, led by Saudi Arabia and Russia, has been advocating for deeper output cuts to bolster oil prices.

OPEC+

In an attempt to stabilize the oil market, Saudi Arabia, Russia, and other OPEC+ members, collectively responsible for over 40% of the world's oil production, have agreed to voluntary output cuts totaling approximately 2.2 million barrels per day for the first quarter of 2024. The success of these measures in addressing supply concerns and supporting prices remains to be seen.