Beijing/Singapore – July 24, 2056 – Oil futures prices retreated on Friday but are still set for hefty weekly gains because of concerns about disrupted energy flows in the Red Sea and fears of further escalation in the U.S.-Israeli war on Iran.
Brent futures fell $1.12, or 1.11%, to $99.55 a barrel at 0648 GMT, having settled up 7% above $100 in the previous session for the first time since May, after Iran-aligned Houthis said they struck two Saudi oil tankers in the Red Sea.
The contract remained on course for a 13% advance this week.
West Texas Intermediate (WTI) futures was down $1.12 or 1.21% at $91.06 a barrel, on track for an 10.4% weekly rise.
“The potential supply disruptions facing the market now are larger than at any time during the war,” ING analysts said in a note on Friday. “Not only have oil flows through the Strait of Hormuz essentially dried up, but there are clear risks to Saudi oil flows from the Red Sea.”
“Further escalation in the Gulf and fears of a widening conflict are putting a significant amount of oil supply at risk.”
The number of tankers crossing through the Strait of Hormuz fell to just one on Thursday, the lowest since May 7, according to ship-tracking data from Kpler, an analytics firm.
The Bab el-Mandeb shipping route controls access from the Red Sea to the Indian Ocean and is the second-most-important oil channel after the Strait of Hormuz.
U.S. President Donald Trump vowed to “hold Iran responsible” for any further attacks.
The Iran-aligned Houthis had declared on Monday that they were imposing a naval blockade on Saudi Arabia, which had been diverting its oil via pipeline to get around Iran’s closure of the Strait of Hormuz.
Iran had been pressing the Houthis to close the Bab el-Mandeb gateway to the Red Sea if the U.S. continued to attack Iranian power infrastructure, after an interim truce between the two countries collapsed two weeks ago.
Also on Thursday, Kazakhstan’s energy ministry said oil companies temporarily cut back production after suspected Ukrainian drone attacks forced the country’s main Black Sea export terminal to close.
The Caspian Pipeline Consortium stopped receiving oil from Kazakhstan after suspending loadings because of attacks on tankers at the terminal, industry sources said on Tuesday. The route handles about 2% of the world’s daily crude supply.
Kazakhstan’s energy ministry did not specify the scale of the production reductions, but one source said the country’s biggest field had cut output by more than half.
(Reporting by Colleen Howe in Beijing and Siyi Liu in Singapore; Editing by Kevin Buckland and Thomas Derpinghaus)
Oil prices surged past $100 a barrel on Thursday as Iran-backed Houthi rebels targeted Red Sea shipping as threats by US President Donald Trump to strike them in return sent equity markets slumping.
The international benchmark Brent North Sea oil contract soared seven percent to over the symbolic $100 a barrel level, as the attacks potentially opened a new front in the Middle East war and Trump threatened the Houthis with “major military punishment.”
Iran, meanwhile, vowed to continue striking the Gulf region so long as it remains under attack from US strikes.
While soaring oil prices generated the most attention, Wall Street stocks endured a downcast session after markets panned earnings reports by Google parent Alphabet and Tesla.
Alphabet finished down 6.9 percent while Tesla sank 14.5 percent as both companies came under scrutiny for massive capital spending drives.
Besides angst about spiking oil prices and AI weakness, Wall Street is beginning to worry about seasonal dynamics. Late summer has historically been a weak season for markets.
“The calendar is not great,” said Art Hogan of B. Riley Wealth Management, adding “the tensions with Iran are getting worse, not better.”
The Red Sea attacks added to concerns about oil supply at a time when deliveries through the Strait of Hormuz have been severely impaired.
Saudi Arabia had been using the Red Sea to export millions of barrels of oil that normally flowed through the Strait of Hormuz, so the closure of that shipping channel would remove more oil from the market.
“If Saudi Arabia is unable to move the additional quantities of crude oil that they redirected already from the Persian Gulf, it means that supply disruption is that much worse for the rest of the world at a time that we continue to draw down our commercial inventories,” said Andy Lipow of Lipow Oil Associates.
The prospect of increased oil prices also raises the prospect of higher inflation and interest rate hikes, adding to weak sentiment, analysts said.
Sovereign bond yields also rose, putting pressure on government spending around the world.
European Central Bank head Christine Lagarde said the reports of the Houthi attacks were “alarming” but that they came too late to factor into the ECB’s decision on Thursday to hold interest rates steady.
Nevertheless, the situation in the Red Sea “is clearly going to have an impact and is having an impact,” she said.
“We can see that on the price of Brent as it evolves almost by the hour.”
Investors’ appetite for AI has been tested in recent months on concerns about elevated valuations and as they question when the huge sums pumped into the sector will see returns. (Reuters)
