Brent crude tops $100 as Middle East conflict threatens oil flows

Benchmark Brent crude briefly climbed above US$100 a barrel on Wednesday (September 9), reaching its highest level in more than six weeks as escalating conflict in the Middle East intensified concerns over oil supplies from the region.

Brent crude futures were up US$2.01, or 2.05%, at US$99.93 a barrel by 0802 GMT after earlier touching US$100.19. US West Texas Intermediate crude gained US$1.49, or 1.60%, to US$94.52 a barrel.

The move marked the first time Brent had crossed the symbolic US$100 threshold since July 24. Prices have risen by about a quarter since early August as hopes for a lasting resolution to the six-month-old US-Iran conflict have faded.

Brent has traded as high as US$126.41 a barrel since the conflict began on February 28, reaching that peak on April 30.

Fresh supply concerns emerged this week after attacks by Iran-backed Houthis on Saudi energy facilities set oil installations ablaze, raising the prospect of a wider regional conflict. 

The attacks have also increased risks to crude shipments through the Red Sea, an important alternative route to the Strait of Hormuz, where oil flows have been sharply reduced since the conflict began. 

Hamad Hussain, senior climate and commodities economist at Capital Economics, noted that investors appeared to be factoring in both a longer conflict and an increased threat to Middle Eastern oil supplies.

“Market participants appear to be pricing in a more prolonged conflict in the Middle East as well as the risk that the latest escalation in military strikes disrupts oil flows from the Middle East,” Hussain said.

“The key risk is whether the recent attacks on oil tankers lead to fewer ship-to-ship transfers taking place in the Gulf of Oman, which have so far played a key role in providing oil to global markets and keeping a lid on prices.”

Several major banks, including Goldman Sachs, Bank of America and HSBC, have raised their crude oil price forecasts in recent days as supply risks have increased.

Rystad Energy Chief Economist Claudio Galimberti estimated that around 8 million to 9 million barrels per day (bpd) passed through the Strait of Hormuz in the week before fighting resumed on August 30, about twice the previous week’s volume. More recently, flows had fallen below 2 million bpd.

Jeffrey Currie, co-chairman at Abaxx Markets, argued that the increase in energy prices should not be viewed as temporary.

“I think the market is trying to treat this rise in energy prices as a one-off. It's not. This is structural. It's not going away, and it's part of what I would argue as a security premium. And it's only going to get bigger,” Currie said.

Although non-OPEC producers including the United States, Canada and Guyana have increased output, the International Energy Agency last month forecast that global oil supply would decline by 4.3 million bpd this year, equivalent to about 4%. 

Source: Reuters