Brent crude oil prices rose more than 1.0 per cent overnight on fears of longer-than-expected supply shortfalls following Saturday’s attacks on a key Saudi Arabian oil processing facility and escalating tensions in the Middle East.
Global benchmark Brent settled 80 US cents, or 1.3 per cent, higher at $US64.40 a barrel while US West Texas Intermediate (WTI) crude pared earlier gains and ended largely steady at $US58.13 a barrel, just 2 US cents firmer.
Saturday’s attacks knocked out around half of Saudi Arabia’s crude production and severely limited the country’s spare capacity, a cushion for oil markets in any unplanned outage.
Tensions have escalated as the United States and Saudi Arabia blamed the attacks on Iran.
“The Saudi oil industry could be threatened again and we could see more supply disruption from the Persian Gulf,” said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.
“What’s hanging over the market’s head is the response that may be coming. How will the US and Saudi Arabia respond to this?” he said.
The government of Saudi Arabia, the world’s leading crude exporter, has said the crippling attacks on its oil sites were “unquestionably sponsored” by regional rival Iran.
The United States administration said it was building a coalition to deter Iranian threats after the September 14 attack while the US military said it was consulting with Saudi Arabian authorities on ways to mitigate threats from the north.
Billions of dollars spent by Saudi Arabia on cutting edge foreign military hardware mainly designed to deter high altitude attacks proved no match for low-cost drones and cruise missiles used in a strike that crippled its giant oil industry.
US President Donald Trump said there were many options short of war and added he had ordered the Treasury to “substantially increase sanctions” on Iran.
Iranian officials have denied involvement in the strikes and warned Trump against being dragged into war.
US Secretary of State Mike Pompeo has described the weekend strike as an act of war.
He said the US has been discussing possible retaliation with Saudi Arabia and other Gulf allies but wanted a peaceful resolution.
“We are still striving to build out a coalition in an act of diplomacy while the foreign minister of Iran is threatening all out war and to fight to the last American,” Pompeo said.
“We’re here to build up a coalition aimed at achieving peace.”
Saudi Arabia has said it would restore lost production by the end of this month, and bring its capacity back to 12 million barrels per day by the end of November.
The Wall Street Journal reported Saudi Arabia had asked Iraq’s State Organisation for the Marketing of Oil (SOMO) for as much as 20 million barrels of crude but an Iraqi state news agency said SOMO denied Saudi Arabia had requested crude supplies for its refineries.
The oil market “is rapidly calling into question whether Saudi Arabia can come through this as cleanly as they claim,” said John Kilduff, a partner at Again Capital LLC in New York.
Also lifting prices, the US dollar weakened and traders were likely unwinding some short positions after this week’s turbulent trading, said Josh Graves, senior market strategist at RJO Futures.
But geopolitical risks were the biggest factor in the price rise, he said.
“The fact that we haven’t retraced back to the low-to-mid $US50s means there’s an expectation Trump would intervene,” Graves said.