Oil rises as drone attack on Saudi oilfield stokes Mideast fears

An employee uses binoculars to look out towards the Arabian Sea in the Port Control Centre at Saudi Aramco’s Ras Tanura oil refinery and terminal in Ras Tanura, Saudi Arabia. (Bloomberg pic)

SINGAPORE: Oil rose for a second day as a drone attack on a Saudi Arabian oil field revived concerns that the tense Middle East political situation may jeopardise crude exports.

Futures in New York advanced as much as 1.7% to trade above US$55 a barrel. Yemeni rebels attacked oil and gas facilities at the Shaybah field in the southeast part of the kingdom over the weekend, although there was only a small fire and no disruption to production, Saudi Arabian Oil Co said in a statement.

Prices were also supported as President Donald Trump said the US is talking with China on trade, but suggested he wasn’t ready to sign a deal yet.

“Though oil production there has not been affected, this nonetheless puts the spotlight once again on the supply risks in the Middle East,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report.

Crude has fallen around 17% from a peak in late April as the US-China trade war intensified, casting a pall over an already-weak outlook for global growth.

While a series of attacks on tankers and energy facilities in the Middle East have provided some temporary support to prices, oversupply remains the key concern for the market.

West Texas Intermediate crude for September delivery rose 35 cents, or 0.6%, to US$55.22 a barrel on New York Mercantile Exchange as of 10.50am in London. The contract, which will expire on Tuesday, advanced 0.7% last week.

Brent for October settlement increased 33 cents, or 0.6%, to US$58.97 a barrel on the ICE Futures Europe Exchange. The global benchmark is trading at a premium of US$3.85 a barrel to WTI, near the smallest gap since March 2018.

Yemen’s Houthi rebel leader Abdul Malik al-Houthi said the drone strike was meant to deliver an “important message” to the Saudi Arabian-led coalition which has been waging war to unseat the Iran-backed Houthi rebels since they overran the capital about four years ago.

The remote Shaybah oilfield produces around 1 million barrels a day, just under 10% of Aramco’s total production capacity, including some of the highest-quality crude from the kingdom.

Recent phone calls between US and Chinese trade negotiators had been “positive” and more teleconference meetings are planned over the next week to 10 days, White House economic director Larry Kudlow said Sunday.

However, President Trump linked the discussions to demonstrations in Hong Kong, saying for the first time on camera that it would be harder to reach a deal if there’s a violent conclusion to the protests.

“Global risk has some stabilisation following the soothing comments on trade-talk developments from the US,” said Jens Naervig Pedersen, a senior analyst at Danske Bank A/S in Copenhagen. “It means that the oil market could have time to pay attention to geopolitical developments.”