Fears of supply disruption push crude prices over $80

UK MOD/Sipa USA via Reuters Connect

• Brent rises after military strikes
• US and UK target Houthis
• European gas prices also up

Brent prices jumped by more than four percent on Friday after the US and its allies launched airstrikes against Houthi rebels in Yemen in retaliation for attacks by the Iran-backed group on ships in the Red Sea.

Global crude oil benchmark Brent traded at $80.74 per barrel, slightly above the estimated break-even mark of GCC countries, while US West Texas Intermediate rose to $75.23 at 15.41 GST.

“This could be just the beginning,” Ali Al Riyami, consultant and former director general of marketing at Oman’s Ministry of Energy and Minerals, told AGBI.

• The Red Sea: a cautionary tale
• Suez shipping traffic drops 20% as Houthi attacks continue
• Gulf retailers absorb Red Sea shipping cost rise – for now

“If the situation escalates, we can see the prices rise beyond $85 and even reach $90.”

European natural gas prices rose 3.2 percent on fears of further supply disruptions, although there is no evidence yet of LNG shortages.

Some companies have already diverted their ships, opting to take a longer route around Africa, resulting in increased costs and delays for cargo. 

“The shipment time is almost 14 days longer, challenging competitiveness of the US oil grades,” said Aditya Saraswat, senior vice president of Middle East analysis at Rystad Energy.

The US and UK launched airstrikes against several Houthi militant locations, claiming to hit storage sites, radar installations and missile launchers.

US President Joe Biden said that Australia, Bahrain, Canada and the Netherlands supported the strikes.

State-owned Saudi Press Agency reported that the kingdom’s officials are monitoring the military operation in the Red Sea “with great concern”.

According to data and analytics company Kpler, the number of tankers passing through the Suez Canal has dropped by 14 percent between December 16 and January 8.

At the same time, freight rose around 30 percent over the last week on cargoes being sourced from the US Gulf Coast as Chinese buyers look to diversify sources.

Analysts are concerned the disruption could spread to the Persian Gulf. The Straits of Hormuz sees the passage of approximately 15.9 million barrels per day of oil, accounting for 31 percent of globally traded seaborne crude. 

“The situation can become more complicated if other countries like Iran, the UAE or Saudi Arabia get involved,” Riyami said. “I don’t think that Houthi will just stop there. They will escalate with more attacks.”

“If Iran is directly drawn into the conflict, it will threaten supply from Iran and flows from the Strait of Hormuz,” Saraswat believed. “It is a significant concern for oil prices.”

On Thursday, Iran captured a tanker in the Gulf of Oman, calling it an “American oil tanker” in response to the US seizing one of its oil tankers last year. 

According to Kpler, the cargo aboard the vessel consisted of one million barrels of Basrah crude, suggesting a likely destination of Tupras’s Aliaga refinery.

“Such actions will bear implications for both Iran-Iraq-Turkey relations and the global oil market,” said Matt Stanley, energy expert at Kpler.