Oil prices experienced a significant surge on Wednesday, with the U.S. issuing a warning to Houthi militants and OPEC pledging to remain united in supporting crude prices. Protests in Libya led to the shutdown of the Sharara oilfield, further complicating the global oil market. These developments have contributed to heightened volatility in oil prices.

The West Texas Intermediate (WTI) contract for February saw a gain of $2.32, or 3.29%, settling at $72.70 a barrel. Similarly, the Brent contract for March added $2.36, or 3.11%, reaching $78.25 a barrel. These price increases were fueled by concerns over Houthi attacks in the Red Sea and disruptions in oil output from the Sharara oilfield.

Houthi militants, backed by Iran and based in Yemen, claimed responsibility for targeting the CMA CGM Tage container ship. However, French shipping company CMA CGM denied any incident occurring with the vessel. This follows Danish shipping giant Maersk's decision to halt all shipping through the Red Sea due to previous Houthi attacks on vessels. German shipping company Hapag-Lloyd also confirmed its decision to continue avoiding the Red Sea.

In response to these attacks, the U.S. and eleven allied nations called for an immediate halt to the Houthi militants' "illegal attacks," warning of severe consequences if the attacks persist. The National Security Council spokesperson, John Kirby, emphasized that the U.S. aims to defend its interests, partners, and the free flow of international commerce.

The volatility in oil prices this week, including a decrease of over 1% on Tuesday, can be attributed to softer fundamentals for crude. Amrita Sen, founder and director of research at Energy Aspects, highlighted that inventory builds towards the end of the year have dampened the market's reaction to the attacks. Sen further stated that unless there are significant supply disruptions, prices are unlikely to witness a significant increase.

Meanwhile, OPEC and its allies issued a statement reaffirming their commitment to maintain oil market stability. In November, several member nations pledged to cut oil production by 2.2 million barrels per day in the first quarter of this year to support prices. However, skepticism remains in the market due to the voluntary nature of these cuts and the challenge of maintaining a unified front within OPEC.

The decline in oil prices last year, with U.S. crude and the global benchmark falling over 10%, can be attributed to concerns about oversupply in the market. The record output of crude in the U.S. and weakening demand in China have also contributed to the market's doubts.

As the oil market reacts to geopolitical tensions and disruptions in supply, investors and traders will closely monitor developments in the region and assess the impact on global oil prices in the coming days and weeks.

Overall, these recent events underscore the delicate balance between geopolitical factors and supply dynamics that continue to shape the oil market, causing fluctuations in prices and volatility in the global economy.