Oil prices saw a notable surge in the first trading session of the New Year, propelled by heightened concerns over potential disruptions in Middle East oil supplies following a naval clash in the Red Sea. Additionally, optimism surrounding robust holiday demand and the anticipation of economic stimulus measures in China, the world's leading crude importer, further contributed to the upward momentum.

As the clock ticked into the new year, Brent crude experienced a rise of $1.28, equivalent to 1.7%, reaching $78.32 per barrel by 0438 GMT. Simultaneously, U.S. West Texas Intermediate crude marked an increase of $1.04, or 1.5%, reaching $72.69 per barrel.

The surge in oil prices was instigated by a naval clash in the Red Sea, where U.S. helicopters successfully repelled an attack on a Maersk container vessel by Iran-backed Houthi militants. The counteraction resulted in the sinking of three Houthi ships and the unfortunate demise of 10 militants. This event heightened concerns about the possibility of the Israel-Gaza conflict expanding into a broader regional confrontation. The significance lies in the potential closure of vital oil transport waterways, including the Red Sea and the Straits of Hormuz in the Gulf.

Post the naval engagement, Iranian media reported on Monday that an Iranian warship had entered the Red Sea. Consequently, at least four tankers transporting diesel and jet fuel from the Middle East and India to Europe altered their routes, choosing to navigate around Africa to circumvent the Red Sea. Ship tracking data corroborated these route adjustments.

The anticipation of the upcoming Lunar New Year holiday in early February further fueled market sentiments, as forecasted Chinese holiday demand emerged as a key factor influencing expectations for a rebound in oil prices this month. Chinese New Year celebrations traditionally result in increased travel and economic activities, leading to heightened energy consumption.

In the context of China, investor expectations for fresh stimulus measures gained momentum following the revelation that manufacturing activity had contracted for the third consecutive month in December, according to government data released on Sunday. The prospect of additional stimulus measures is seen as a potential catalyst for economic growth, with the capacity to boost oil demand and provide support to oil prices.

The interconnected dynamics of geopolitical tensions, holiday demand, and economic stimuli create a complex landscape for oil markets at the outset of the year. As market participants closely monitor developments in the Middle East and gauge the impact of global events on oil transport routes, the trajectory of oil prices remains subject to a range of factors that will unfold in the coming weeks.