Oil prices fell more than one per cent on Thursday, December 28 as concerns eased about shipping disruptions along the Red Sea route, even as tensions in the Middle East continue to fester. Crude has risen about eight per cent since its December low as Houthi attacks on vessels in the Red Sea forced tankers and other ships to divert on longer voyages, boosting costs.

Front month February Brent crude futures were down $1.02, about 1.3 per cent, at $78.63 a barrel in subdued trade ahead of their imminent expiry, while the more active March contract was down 92 cents, about 1.2 per cent, at $78.62 a barrel. 

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US WTI crude futures were trading 82 cents, or about 1.1 per cent, lower at $73.29 a barrel, , according to news agency Reuters. Oil prices dropped nearly two per cent on Wednesday as major shipping firms began returning to the Red Sea.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a January 19 expiry, was last trading 1.88 per cent lower at ₹6,094 per bbl, having swung between ₹6,068 and ₹6,200 per bbl during the session, against a previous close of ₹6,211 per barrel.

What's weighing on crude oil prices?

-Denmark's Maersk will route almost all container vessels sailing between Asia and Europe through the Suez Canal from now on while diverting only a handful around Africa, a Reuters breakdown of the group's schedule showed on Thursday.

-Major shipping companies, including container giants Maersk and Hapag-Lloyd, stopped using Red Sea routes and the Suez Canal earlier this month after Yemen's Houthi militant group began targeting vessels, disrupting global trade.

-Israel has escalated its ground war in Gaza sharply since just before Christmas, with Israel's chief of staff Herzi Halevi telling reporters this week that the war would go on "for many months".

-Data from the American Petroleum Institute industry group on Wednesday showed crude stocks rose 1.84 million barrels in the week ended December 22, against estimates from seven analysts polled by Reuters for a drop of 2.7 million barrels. Meanwhile, the growing prospect of interest rate cuts in Europe and the US in 2024 are positive from an oil demand perspective.

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Where are prices headed?

Crude oil prices experienced another decline on Wednesday, reversing earlier session gains, as a multi-national task force deployment in the Red Sea weighed on the market, said analysts.

Despite the temporary suspension of routes through the Suez Canal and Red Sea earlier this month due to the task force deployment, several dozen container vessels are expected to resume travel in the coming weeks. The anticipation of increased shipping activity contributed to the slip in crude oil prices, according to Mehta Equities.

‘’Hopes for a Federal Reserve rate cut and weakness in the dollar index could offer support to prices. We anticipate continued volatility in today's crude oil price session. The commodity finds support in the range of $73.70–73.10, with resistance at $74.90-75.60 for the current session. In INR, crude oil has a support level at ₹6,110-5,980, while resistance is identified at ₹6,290-6,380,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.