Brent climbs to more than 7 years on tensions in the Middle East
Some pump jacks work while others sit idle at the Belridge oilfield on November 03, 2021 near McKittrick, California.
mario tama | Getty Images
Oil prices rose more than $1 on Tuesday to a more than seven-year high on concerns over possible supply disruptions after Yemen’s Houthi group attacked the United Arab Emirates, intensifying the hostilities between the Iran-aligned group and a Saudi-led coalition.
The “new geopolitical tension has added to continued signs of market stress,” the ANZ Research analyst said in a note.
Brent crude futures rose 85 cents, or 1%, to $87.33 a barrel at 0525 GMT, after hitting a high of $87.55, their highest since Oct. 29, 2014.
U.S. West Texas Intermediate (WTI) crude futures have jumped $1.13, or 1.4%, since Friday’s settlement to a more than two-month high of $84.95 a barrel. Monday’s trading was subdued as it was a US holiday.
After launching drone and missile strikes that set off explosions in fuel trucks and killed three people, the Houthi movement warned it could target more facilities, while the United Arab Emirates said that they reserved the right to “respond to these terrorist attacks”.
UAE oil company ADNOC said it activated business continuity plans to ensure an uninterrupted supply of products to its local and international customers after an incident at its fuel depot in Mussafah.
CommSec analysts said oil prices were also supported by colder winter temperatures in the Northern Hemisphere, which were increasing demand for heating fuels.
“Analyst forecasts expect demand to outstrip supply this year as the world opens up after 2 years of shutdowns and resumes a more normal trajectory for demand,” said Ash Glover of CMC Markets.
The tight balance between supply and demand is unlikely to ease, analysts say.
Some producers within the Organization of the Petroleum Exporting Countries (OPEC) are struggling to pump at their licensed capacities, due to underinvestment and outages, under a deal with Russia and its allies, known as OPEC+, to add 400,000 barrels per day each month.
“This should continue to support oil and increase triple-digit price talk,” said OANDA analyst Craig Erlam.
“If the current geopolitical tensions continue and OPEC+ members cannot meet their 400,000 barrel per day increase, the macros coupled with the strong technical outlook could see prices push towards the $100 mark, where is the next level of (significant) technical resistance”. Glover said.