Oil Dips After Two-Day Gain as Traders Weigh Middle East Outlook
(Bloomberg) -- Brent oil slipped after surging almost 6% over the previous two sessions, as traders weighed continued hostilities between the US and Iran against efforts to broker a new ceasefire.
The global benchmark fell below $89 a barrel, while West Texas Intermediate dipped to trade near $83. The US conducted a 10th straight day of strikes after President Donald Trump vowed Tehran “will pay” for killing American soldiers. Iran responded with missile and drone attacks on Kuwait.
Still, diplomatic efforts have continued. Iran said mediators were in touch with proposals to ease hostilities after more than a week of worsening clashes, while Reuters reported a suggestion for a 10-day halt of strikes.
Oil prices have repeatedly swung on the prospects for escalation and détente in the conflict, and a threat by Yemen’s Houthi militants to blockade Saudi Arabia’s maritime traffic in the Red Sea adds another level of risk. The Red Sea route allows the kingdom to export millions of barrels of crude via a cross-country pipeline that bypasses the Strait of Hormuz.
“If there’s a disruption in the infrastructure, particularly the shipping lanes, then that could cause a spike in oil prices,” said Rob Thummel, senior portfolio manager at Tortoise Capital LLC, referring to the Houthi threat. “Inventories have drawn down a bit, so there’s just not a lot of margin for error.”
Saudi Arabia has ramped up exports from Yanbu, its key Red Sea export hub, and roughly 2.5 million barrels a day are at risk from Houthi attacks, Jorge Leon, senior vice president and head of geopolitical analysis at Rystad Energy AS, said in a note. The Saudi Foreign Ministry said it would take all necessary measures to protect its ships in accordance with international law.
Brent could exceed $120 a barrel by the fourth quarter if Hormuz disruptions persist, according to Goldman Sachs Group Inc., although that’s not the bank’s base case. At present, Goldman sees $80 in the final three months of the year, with the Houthi threat adding to upside risks to the forecast.
Visible traffic through Hormuz came to a near standstill on Monday following Iranian attacks on vessels over the weekend. An oil supertanker called the Acheloos and a smaller fuel tanker were both struck in the waterway, according to Dynacom Tankers Management Ltd., the ships’ manager.
Early Tuesday, the UK Maritime Trade Operations said that a tanker had been struck by an unknown projectile in the strait northeast of Oman’s Limah, citing multiple reports, without identifying the vessel. The notice indicates a separate attack to those on the Dynacom tankers.
The flare-up in violence around the waterway has prompted some shipowners to offer huge bonuses to get crews to sail through Hormuz. Sinokor Group, the world’s largest owner of supertankers, has offered six months extra salary if seafarers make a return voyage.
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