Oil prices paused on Monday, but remained elevated after sharply rising tensions between Saudi Arabia and Yemen briefly sent Brent crude above $70 a barrel.
The price of Brent crude BRNK21,
Both contracts are up more than 30% year to date, adding more than 7% last week following a surprise move by the Organization of the Petroleum Exporting Countries and its allies to rollover current production cuts through end-April.
Warplanes from a Saudi-led coalition dropped bombs on Yemen’s rebel-held capital Sanaa on Sunday, following attacks on Saudi Arabia’s oil and military facilities. The coalition blamed the administration of President Joe Biden for the attacks by Iran-backed Houthi rebels after a decision to remove them from U.S. terror lists.
“Possible damage at Ras Tanura in particular is generating concern on the oil market, as this is home to Saudi Arabia’s biggest oil storage facility and oil export terminal,” said Eugen Weinberg, head of commodity research at Commerzbank, in a note to clients.
“The news fell on fertile ground as Brent had already increased to $70 per barrel on Friday,” due to OPEC’s surprise move to not step up production for now, said Weinberg.
“It seems that OPEC is focusing on price control at present, and that it wants to completely eradicate any surplus stock by the autumn in readiness for the possible return to the market of Iranian oil exports in the event that agreement is reached with the U.S. on the nuclear dispute,” he added.
But Weinberg warned that OPEC and the Saudis are failing to account for the possibility of increased production from U.S. shale producers. Commerzbank sees sharply higher output ahead, due to very high oil prices presently. For that reason, Weinberg said they remain skeptical about oil prices over the medium to long term. The team recently lifted its Brent oil forecast by $10 to $60 for end 2021, and $65 for the second quarter.
Friday’s data from Baker Hughes BKR,
Across other energy contracts, April gasoline RBJ21,
Mike Murphy contributed to this article
