Brent Tops $116 as Middle East Risks Grow

by Bloomberg | K. Matsuyama, A. Longley, M. Gindis
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas

Oil prices climbed as escalating attacks on Saudi Arabia heightened fears of Middle East supply disruptions.

Brent oil finished out the week at the highest level since April as intensifying attacks on Saudi Arabia added to supply concerns already stoked by the US-Iran war.

The global crude benchmark settled below $117 a barrel on Friday, up more than 6% this week, while West Texas Intermediate closed above $103. Iran-backed Houthi militants claimed recent attacks on the Saudi Red Sea port of Yanbu, as well as deadly strikes on an oil field and airport in the kingdom.

“Weekend escalation fears are adding fuel,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “Even as geopolitical analysts play down the likelihood,” traders are nervous, she added.

The flareup threatens to widen hostilities around the Strait of Hormuz, where crude exports have recovered to near prewar levels. Oil traders have also been reluctant to hold short positions ahead of the weekend, when markets are closed. Several bullish options market dynamics are also reverberating through to futures.

At the White House on Thursday, US President Donald Trump told reporters that the US has “knocked” out Iran and threatened to go “a little bit further,” without elaborating. The New York Times reported this week that the US and Israel have developed plans for renewed strikes against the Islamic Republic after the American midterm elections early next month.

Brent is up more than 85% this year because of the US-Iran war, which is now approaching its ninth month. Refined-product prices have risen even faster, most notably diesel. More recently, however, flows through Hormuz have surged, weighing on physical markets even as futures climb.

“Beyond escalation in the Middle East conflict, freight rates have increasingly become the important marginal driver, with elevated landed prices for refiners potentially putting a cap on crude oil upside as weaker margins may limit refiner runs,” said Ryan McKay, senior commodity strategist at TD Securities. “This however, would ultimately keep refined products extremely tight.”

The US is preparing for a protracted conflict with Iran and could still be mired in a stalemate a year from now, Trump’s Ambassador to the United Nations, Mike Waltz, told the Financial Times. The US Navy can maintain its blockade of Iranian ports for the “foreseeable future” and the administration is tightening economic pressure on Tehran, he added.

The Yemen-based Houthis have repeatedly attacked Saudi Arabia in recent months. State-owned Aramco evacuated its Dhahran headquarters on Thursday and asked staff to work from home after an alarm, according to people familiar with the matter.

Further amplifying price gains, options dealers are hedging short-gamma en masse, according to market participants. As investors rush to the options market, dealers providing such contracts either buy or sell in a bid to neutralize their fast-moving exposures – a dynamic known as “gamma hedging.” Surging prices prompt more buying, contributing to a self-reinforcing rally.

While crude flows from the Persian Gulf have recovered, oil-product shipments from the region remain constrained. That squeeze, along with intensifying Ukrainian attacks on Russian refineries, has prompted governments to tap stockpiles. Trump is also pushing measures to lower prices ahead of the midterm elections, including a diesel deal with Moscow.

“We expect crude oil will remain skewed to the upside in the near term as escalation risk ahead of Israeli elections and US midterm elections remains elevated,” TD’s McKay said.

Oil Prices

• WTI for December delivery climbed 3.8% to settle at $103.27 a barrel in New York.
• Brent for December settlement rose 3.1% to settle at $116.72 a barrel.

by Bloomberg | K. Matsuyama, A. Longley, M. Gindis
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas