Oil advanced in London after an attack on Saudi Arabian tankers heightened concern over disruption to supplies.
Brent futures rose as much as 1.2 per cent after adding 0.7 per cent Wednesday. Two vessels were attacked by Yemeni Houthi militia, leading Saudi Arabia to suspend oil shipments via the Bab Al Mandeb Strait. Meanwhile, US crude inventories dropped to the lowest since 2015, and an Indian refiner said it’s unlikely to buy more Iranian oil unless it secures a sanctions waiver.
Oil has fluctuated this month as traders weigh the pledge of the Organisation of Petroleum Exporting Countries (Opec) to pump more crude against a potential slump in Iranian exports following the US President Donald Trump’s renewal of sanctions. Thursday’s gain highlights the growing political-risk premium in the crude market, even though Brent’s current contango price structure suggests there’s still ample supply.
The Saudi halt tells us that the geopolitical threat to the energy space is never far away, said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S. Even though we’ve seen a return to contango, it’s not adding additional pressure to the price at this stage, as most people expect it to be a temporary thing.
Brent for September added as much as 90 cents on the London-based ICE Futures Europe exchange, and traded up 17 cents at $74.10 a barrel as of 1:36pm local time. The Brent September-October timespread closed Wednesday at the weakest level for a front-month spread since April 2017, excluding expiry days. Options on the September Brent contract expire Thursday.
West Texas Intermediate crude for September delivery rose as much as 44 cents to $69.74 a barrel on the New York Mercantile Exchange, before erasing gains to trade little changed. Brent traded at a $4.91 premium to WTI.
The Bab Al Mandeb Strait is one of the world’s key shipping lanes for crude and other petroleum products. A full closure would force tankers from Saudi Arabia, Kuwait, Iraq and the UAE to sail around the southern tip of Africa, adding to transit time and cost, according to the US Energy Information Administration.
The EIA also published its US stockpile data, which showed inventories dropped by 6.15 million barrels last week to 404.9 million barrels, while supplies at the key storage hub of Cushing, Oklahoma, shrank for a 10th week. US crude exports surged by the most on record.
Source: Gulf News