Oil prices concluded the initial trading session of 2024 on a downward trend, influenced by diminishing prospects for interest rate cuts and alleviated concerns regarding potential disruptions in supply routes through the Red Sea.

The settlement for Brent crude stood at $75.89, marking a decrease of $1.15 or 1.5%. Simultaneously, U.S. West Texas Intermediate (WTI) crude settled at $70.38 per barrel, experiencing a decline of $1.27 or 1.8%.

The decline in oil prices was prompted by a recalibration of expectations among investors regarding the likelihood of interest-rate cuts in 2024. Anticipated reductions in interest rates tend to lower consumer borrowing costs, potentially stimulating economic growth and, consequently, oil demand. The strengthening of the U.S. dollar on Tuesday, coupled with a dip in stock prices, exerted additional downward pressure on oil. A stronger dollar renders oil more expensive for investors holding currencies other than the U.S. dollar.

Earlier trading saw oil prices rising by approximately $2 following attacks on vessels in the Red Sea by Houthi rebels over the preceding weekend and reports of an Iranian warship's arrival on Monday.

The correction in oil prices ensued as it became evident that there were no significant disruptions in supply, and the likelihood of the Iranian warship engaging with American warships was deemed improbable, as noted by Andrew Lipow, President of Lipow Oil Associates. Lipow emphasized that any escalation in hostilities could propel oil prices higher.

In response to these developments, Danish shipping company Maersk and German competitor Hapag-Lloyd announced their decision to continue avoiding the Red Sea route, which provides access to the Suez Canal. The potential for a broader conflict heightens concerns about the closure of critical waterways crucial for oil transportation.

It is predicted that Brent crude would average $82.56 per barrel in the current year, a marginal increase from the 2023 average of $82.17. Weak global growth projections are expected to cap demand, but geopolitical tensions could act as a supporting factor for oil prices.

In China, the revelation of a third consecutive month of shrinking manufacturing activity in December prompted rising expectations among investors for economic stimulus measures. The implementation of such stimulus measures has the potential to boost oil demand and provide support for crude prices.

Separately, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) are planning to convene a meeting of their Joint Ministerial Monitoring Committee (JMMC) in early February, although the exact date remains undecided.