Crude oil prices have been volatile since the start of the New Year as geopolitical tensions in the Middle East offset current long-standing economic concerns.

Still, benchmark oil prices recorded losses on the first trading day of the New Year as concerns about the U.S. economy temporarily outweighed fears of another escalation in the Red Sea.

ING's Warren Patterson and Ewa Manthey said in a note released early yesterday: "The energy market cannot escape the broader pressures on risk assets, and equity markets are also weakening. Oil prices remain weak despite heightened tensions in the Middle East."

"While the geopolitical situation is a concern for the oil market, a fairly comfortable oil balance in the first half of 2024 does help alleviate some of these concerns," the commodities analyst added.

The latest news on this front was the arrival of an Iranian warship in the Red Sea over the weekend, which coincided with a recent attack by Yemeni Houthi forces on a Maersk container ship that sent a distress call to the U.S. Navy in the area, which sank three Houthi vessels.

Some reports appeared to indicate that the arrival of the Iranian warship was in response to the sinking of the Houthi ship, which killed 10 people, but some reports said the Iranian warship entered the Red Sea the day before the attack on the Maersk ship.

Affected by the news, oil prices finally reversed early losses on Wednesday, with U.S. crude oil closing up more than 3% at $72.99 a barrel, while Brent crude oil rose 3.09% to close at $78.44 a barrel on Wednesday. Brent crude was currently trading around $78.46 a barrel in Asia on Thursday. OPEC, meanwhile, said it would meet in February to discuss its ongoing policy of cutting production. Analysts at ING point out that there is no more room to cut production.

"Past rounds of production cuts have been driven by voluntary cuts by individual members, rather than by the organization as a whole, suggesting that it is becoming increasingly difficult to get all members on board," Patterson and Manthey wrote.

Neil Beveridge, senior analyst at Sanford Bernstein, said the Red Sea incident "has not caused any disruption to the physical supply of the market." "Going into the New Year, the market looks fairly balanced, so OPEC has a lot of work to do to support prices at current levels."

Brent crude oil continuous daily chart at 11:37 Beijing time on January 4, Brent crude oil continued to trade at $78.46 / barrel