The attack on Saudi oil tankers and growing tensions near the Strait of Hormuz could drive oil prices higher, analysts told Argaam.
Oil prices rose on Monday following concerns over supply disruptions in the Middle East and ongoing US-China trade tensions.
Brent crude was up $1.06 (+1.5%) at $71.68 a barrel by 2.30 pm Riyadh time, while US West Texas Intermediate (WTI) rose 79 cents (+1.3%) to $62.45 per barrel.
“Rising geopolitical tensions in the Middle East have been supportive of oil prices recently, and the attack on Saudi oil tankers has rendered yet another bullish signal to prices,” Abhishek Kumar, head of analytics at London-based Interfax Energy told Argaam. “Market participants will watch closely who is responsible for the attack amid worsening relations between Iran and the United States.”
Last year, the OPEC+ agreed to cut production in order to balance and support prices. Following the US sanctions on Iran, OPEC and Russia have pledged to increase output to meet any shortfall in the market.
“Saudi Arabia and its Gulf allies will play a crucial role in balancing the oil market at a time when supplies from Iran and Venezuela are falling sharply, partly as a result of US sanctions. Ratcheting up of tensions near the Strait of Hormuz has the potential to adversely impact oil transportation via the Strait, which could move oil prices even higher,” he added.
These scenarios could also ramp up risk premiums, and can typically increase shipment fees which in turn could increase oil prices— especially in case it cripples supply.
“However, I doubt the GCC governments will submit to these threats and instead show stronger resolve in pushing through and therefore I believe supply will not be impacted but there could be a slight increase in shipment costs going forward,” said Issam Kassabieh, senior financial analyst at Menacorp Financial Services.
Cyril Widdershoven, geopolitical analyst and director of Dutch consultancy Verocy, added that the sabotage attack on the vessels off Fujairah will have several detrimental effects such as risk premiums on shipping will increase substantially and risk overall for the whole region will increase.
Meanwhile, Saudi Aramco declined to comment on queries sent by Argaam.
Earlier in the day, Saudi Energy Minister Khalid Al-Falih said that two Saudi oil tankers were targeted in a sabotage attack off the coast of Fujairah at 6 am local time on Sunday, which led to "significant damage" to the vessels while on their way into the Arabian Gulf.
Read: Saudi oil tankers ‘significantly damaged’ on sabotage attacks: Al-Falih
Denouncing the attack, Al-Falih emphasized the joint responsibility of the international community to protect the safety of maritime navigation and the security of oil tankers, as these incidents pose a danger to energy markets and the global economy.
Separately, the trade negotiations between United States and China ended in a deadlock on Friday, as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any “bitter fruit” that harmed its interests.
Write to Parag Deulgaonkar at parag.d@argaamplus.com
Comments
{{DisplayName}}
{{ElapsedTime}}