Crude oil prices rose about 3% on Monday, with Brent futures approaching $108 a barrel and West Texas Intermediate crude reaching around $103, as escalating tensions in the Middle East raised fresh concerns about disruptions to global energy supplies, Economic Times reported.
The price increase followed attacks involving vessels in the Gulf and the closure of Saudi Arabia’s East-West oil pipeline. The pipeline allows Saudi Arabia to reroute exports without using the Strait of Hormuz, a critical maritime passage for oil shipments. Its outage has raised concerns about the loss of supply equivalent to as much as 4% of global oil production, according to the report.
Saudi Arabian state media released footage on Sunday showing damage to homes and a mosque in the country’s southern Jazan province, which it attributed to a Houthi attack. The Houthis said they had also targeted a Saudi military base in a neighbouring province. Separately, Iranian state media reported that an Iranian cargo vessel was struck in the Strait of Hormuz.
Iran subsequently postponed a planned briefing for neighbouring countries on its efforts to manage shipping through the strait. The report also said the United States had not immediately responded to the latest developments. The United States has previously struck Iranian-flagged vessels during its blockade of Iranian ports, while Iranian ballistic missile threats against US warships have added to market concerns.
The latest rise extends a sharp move recorded last week, when oil prices increased 8% and moved above $100 a barrel for the first time since July. Market participants are assessing whether the pipeline outage and shipping disruptions will be temporary or continue to restrict exports and transport routes.
Tony Sycamore, an analyst at IG, told Reuters that crude prices could move towards the near-$120-a-barrel high recorded in early March unless talks in Oman produce an operational outcome or the Saudi pipeline is restored quickly. Goldman Sachs has also outlined a scenario in which oil could rise to $120 a barrel if attacks on Middle Eastern vessels intensify.
Goldman Sachs co-head of global commodities research Daan Struyven said recent attacks indicated that shipping disruptions could spread and become more severe, according to Bloomberg. JPMorgan estimates that every additional month of disruption could add about $7 to $8 a barrel to Brent prices. If disruptions continue for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.
The market outlook remains dependent on the duration of the supply and shipping interruptions. Goldman Sachs expects oil prices to move back towards $80 a barrel if exports return to normal. Citi, meanwhile, raised its average Brent crude price forecast for the third quarter to $86 a barrel from $80, citing a longer-than-expected timeline for reopening the Strait of Hormuz.
