Oil near six-week highs as conflict threatens key routes

Summary

Oil prices rose to near six-week highs today on mounting concerns about disruptions to key Middle Eastern supply routes because of escalating hostilities between the US and Iran and threats to shipping by the Iran-backed Houthi militia in Yemen. Brent crude futures rose $2.84, or 3.12%, to $93.85 a barrel this morning, while US West Texas Intermediate crude climbed $2.93, or 3.47%, to $87.27. Both benchmarks touched their highest levels since June 11. The US military said that it carried out an 11th consecutive night of attacks. The US attacks came a short while after the Kuwaiti army said its air defences were intercepting Iranian drones today. The renewed conflict over control of the Strait of Hormuz is occurring amid increasing fears of further disruptions to global energy supplies after the Iran-aligned Houthis opened a new front in the war by threatening to target vessels carrying Saudi oil in the Bab el-Mandeb strait and announcing a naval blockade of Saudi Arabia. "The energy market now has the dual-strait worry, with the Bab el-Mandeb Strait looking like it could join the Strait of Hormuz as a hot spot, as traders closely watch shipping numbers in the Red Sea," said Tim Waterer, chief market analyst at KCM Trade. The Bab el-Mandeb at the southern entrance to the Red Sea has become an increasingly important route for Saudi Arabian crude exports as traffic through the Strait of Hormuz has fallen sharply since a ceasefire between the United States and Iran collapsed earlier this month. Three oil tankers loaded with Saudi crude for China and India made U-turns in the Red Sea yesterday, heading towards the Suez Canal rather than braving the Yemeni coast following a warning from the Houthis. "The (Houthi) threat has led tankers to divert which could further pressure the physical market and Saudi exports, contributing to push prices to the upside," said Frank Walbaum, market analyst at trading platform Naga.com. In response to the Houthi warnings, Asian refiners are seeking to ship crude oil from Saudi Arabia's Red Sea port of Yanbu through the Suez Canal and around Africa. While global oil stockpiles have drawn amid the conflict, the latest US data is showing some building of inventories. Data from the American Petroleum Institute showed that US crude and distillate inventories rose last week, while gasoline stockpiles fell, market sources said. The inventory data comes ahead of official figures from the US Energy Information Administration later today.