SINGAPORE: The threat of war in the Middle East is pushing oil prices higher again, capping one of the most dramatic ever weeks for crude markets in which 5% of the world’s supplies were cut by attacks on Saudi production facilities.
While Saudi Arabia’s efforts to restore output and assurances that the world has adequate supply have helped temper some of the unprecedented gains in the aftermath of the attacks, prices are still up almost 8% this week at almost US$65 a barrel.
The US and Saudis say evidence points to Iran’s involvement and the threat of retaliatory action against the Islamic Republic is keeping prices elevated.
Iran’s foreign minister warned that any strike would lead to“all-out war.”
The ratcheting up of instability in the world’s most important oil-producing region has raised the risk premium for oil prices, which are almost US$5 a barrel higher than before last weekend’s attacks on the Saudi facilities.
There’s also prevailing concern about how long it will take the kingdom to fully restore lost production, as it depletes reserves to meet supply commitments and operates without its usual buffer of spare capacity.
“Given the level of uncertainty into the weekend, prices could remain skewed to the upside,” Stephen Innes, Asia-Pacific market strategist at AxiTrader, said in an emailed note.
Traders are hedging that the initial estimates for the duration of repairs, given the complex nature, could well underestimate the time required, he added.
Brent crude for November settlement rose 42 cents, or 0.7%, to US$64.82 a barrel on the ICE Futures Europe Exchange as of 8.52am in Singapore on Friday.
The global benchmark crude is up 7.7% this week, the most since January.
It’s a bullish end to an extraordinary week for oil, during which Brent jumped a record 19% in the first few seconds after trading resumed on Monday following the weekend attacks.
Futures pulled back through the middle of the week as the Saudis said they were aiming to restore lost production capacity by the end of the month.
West Texas Intermediate for October delivery rose 64 cents, or 1.1%, to $58.77 a barrel on the New York Mercantile Exchange on Friday.
Some of the gains in prices have also been tempered by a storm flooding the US Gulf Coast, threatening to curb demand for crude.
The remnants of Tropical Storm Imelda dumped more than three feet of rain on parts of the Texas coast, cutting refinery operations and shutting a key pipeline.