WTI soars to near $74.50 on supply concerns following US airstrikes on Houthi group

• The price of oil rises significantly as airstrikes by the United States and its allies against the Houthi rebels have compounded concerns about supply disruptions.
• The probability of retaliation by the Houthis, supported by Iran, is high, which could generalize conflicts in the Middle East.
• Investors are optimistic about the Fed lowering interest rates in March.

West Texas Intermediate (WTI) futures on NYMEX have risen sharply to near $74.50 as investors worry about worsening oil supply problems due to increasing strains on merchant ships passing through the Red Sea. The US military has launched multiple airstrikes against the Iran-backed Houthi group in retaliation for attacking commercial oil shipments.

Airstrikes by the US military and its allies are expected to disrupt trade flows through the Suez Canal and exacerbate tensions in the Middle East. A widespread conflict in the Middle East will increase oil supply disruptions in 2024 and keep WTI prices rising.

Upside risks to oil prices have increased amid the likelihood of an oil supply disruption at a time when the global economy is recovering from the doom and gloom of a restrictive interest rate environment and high price pressures.

Meanwhile, investor confidence in a rate cut by the Federal Reserve (Fed) in March, despite higher consumer price inflation, has provided some strength to the oil price. A strong recovery in the global economy is expected if the Fed plans an early rate cut, as market participants predict. This will also stimulate global demand for oil and ultimately its prices.

Looking ahead, investors will focus on China's fourth-quarter Gross Domestic Product (GDP) and Industrial Production data. The Chinese economy has been struggling to hold firm due to declining export orders and vulnerable domestic demand following the Covid crisis. It should be noted that China is the main oil importer in the world and an economic slowdown in the Asian giant has an impact on the price of crude oil.