Oil Prices Retreat After Israel-Hamas Ceasefire Deal and Impact on Red Sea Shipping

Oil prices saw a decline on Thursday following the announcement of a ceasefire agreement between Israel and Hamas, marking a significant de-escalation after 15 months of war. According to Qatari Prime Minister Sheikh Mohammed bin Abdul Rahman Al Thani, the deal, which includes provisions for a hostage release, is expected to take effect on Sunday, pending approval by the Israeli cabinet.

In response to the news, Brent crude for March delivery dropped by 0.80%, trading at $81.37 per barrel, while WTI crude fell 1.39%, changing hands at $78.93.

The ceasefire agreement has led maritime security officials to anticipate a reduction in attacks by the Houthi militia, who have significantly ramped up assaults on commercial shipping in the Red Sea. Since the outbreak of the Middle East war, the Houthis targeted vessels in retaliation for Israel's actions in Gaza. These attacks have disrupted shipping through one of the world’s most critical waterways—the Red Sea—which is vital for global trade, including oil transport.

The Red Sea and the Suez Canal, a key global shipping route, handle about 12% of world trade, with 30% of global container traffic passing through. These shipping routes are also essential for crude oil transport, including the significant flow of Middle Eastern crude to Europe. Maritime disruptions in the Red Sea and Suez Canal have already led to shipping suspensions by several major companies, such as Maersk, Hapag-Lloyd, and MSC.

With the expectation that Houthi attacks on shipping will decrease, global shipping companies and oil traders are closely monitoring the situation. The Suez Canal plays a crucial role in global oil trade, with northbound traffic, primarily crude oil from the Middle East, making up around 3.9 million barrels per day (bpd). Southbound traffic, mainly crude from Russia, accounts for 2.9 million bpd.