Oil pulls off Christmas rally as Red Sea chaos feeds demand

• WTI Oil snaps above $74 and enters room for more upside. 
• Oil surges as demand is set to pick up after all big freight shipping companies are taking longer routes to avoid the Red Sea passage. 
• The DXY US Dollar Index jumps higher after a downbeat start of the week.

Oil prices are jumping higher throughout the week as Red Sea attacks fuel fears of disrupted supply chains. On Monday, a vessel was attacked by missiles coming from Houthi rebels, making the passage in the Red Sea to the Suez Canal unsafe as a travel route. All big freight shipping companies have deviated their fleet away from the Red Sea, taking the much longer road around Africa, making it more expensive and diesel consuming to get goods where they need to be. 

Meanwhile, the US Dollar (USD) is unable to benefit from the safe-haven inflow, with markets rather focusing on the quick solutions delivered. Instead, the Greenback is stuck with markets being clueless about what to do with all comments from Fed speakers that are pushing back against early rate cuts expectations from markets. From a technical point of view, trading volumes are starting to die down ahead of Christmas. 

Crude Oil (WTI) trades at $74.70 per barrel, and Brent Oil trades at $79.90 per barrel at the time of writing. 

Oil News and Market Movers: Demand to pick up 

• The US is forming a task force with France, Canada and several other countries to monitor safe passage in the Red Sea. However, this will take time before becoming a reality. 
• Markets are already gearing up for a pickup in inflation on the back of the longer routes vessels, and ships will need to take to go around Africa, which comes with longer transportation times and more fuel consumption. 
• Overnight, the weekly numbers from the American Petroleum Institute (API) were released. A build of 939,000 was reported for the Crude stockpile.
• At 15:30 GMT, the Energy Information Administration (EIA) is set to release its crude numbers. Previous was a drawdown of 4.259 million, and another  drawdown of 2.233 million barrels is expected.

Oil Technical Analysis: The longer this takes, the higher Crude will go

Oil prices are soaring higher as problems mount in one of the most important areas for global trade. The Red Sea and Suez Canal will see substantially less passage as all big shipping firms are sending their fleet around Africa, awaiting the US-led task force to be operational. Meanwhile, demand for Crude will likely jump, with market participants afraid to fall without supply as longer routes now need to be factored in for delivery.

On the upside, $74 got broken and tested for support, offering more upside. Once through there, $80 comes into the picture. Although still far off, $84 is next on the topside once Oil sees a few daily closes above the $80 level. 

Below $74, the $67.00 level could still come into play as the next support level to trade at as it aligns with a triple bottom from June.. Should that triple bottom break, a new low for 2023 could be close at $64.35 – the low of May and March – as the last line of defence. Although still quite far off, $57.45 is worth mentioning as the next level to keep an eye on if prices fall sharply. 

US WTI Crude Oil: Daily Chart