Oil price jumps on supply disruption concerns amid Yemen tensions

on Mar 26, 2015
Updated: Oct 11, 2019

Crude oil futures have rallied sharply so far in today’s European morning session amid concerns over the worsening geopolitical situation in the Middle East, raising concerns over potential supply disruptions. The jump in crude prices was, however, dismissed by analyst as speculative, saying that there was no immediate threat to supplies amid the ongoing global glut.

Brent for May delivery had climbed $2.37, or about 4.2 percent, to $58.85 per barrel as of 08:39 GMT on the London-based ICE Futures Europe exchange. The benchmark rose as high as $59.71 a barrel following news that Saudi Arabia and its allies had launched airstrikes on Houthi rebel forces in Yemen.
Adel al-Jubeir, Saudi Arabia’s ambassador in Washington, said during a press conference that the kingdom “will do whatever it takes in order to protect the legitimate government of Yemen from falling”. Gulf news channel al-Arabiya reported that the Saudis were contributing as much as 150,000 troops, as well 100 warplanes to the task force, while Egypt, Jordan, Sudan and Pakistan were also ready to participate in a ground offensive in Yemen.
Analysts, however, were quick to dismiss any potential supply disruptions in the Middle East as detrimental to the market, claiming that the global crude built up from US shale oil and robust output from producers such as Russia, would prove more than sufficient to ease any short-term concerns over supply shortages.
Reuters quoted Masaki Suematsu, manager of the energy team at brokerage Newedge Japan in Tokyo, as saying: “Just because Saudi and others conducted air strikes doesn’t mean the oil market becomes suddenly tight,” although he warned that the conflict may spiral further beyond the airstrikes.
May WTI futures had jumped 4.86 percent, or $2.39, to $51.60 a barrel as of 08:39 GMT, and was changing hands above the $50 level for the first time in over two weeks. US crude extended its gains from the previous session despite the weekly inventory report from the Energy Information Administration (EIA) which showed that stockpiles had hit a record high for an eleventh consecutive week
The Washington-based agency said that US crude-oil inventories rose by 8.2 million barrels to 466.7 million barrels in the week to 20 March, with the EIA claiming that stockpiles were “at the highest level for this time of year in at least the last 80 years”. Production rose to 9.42 million barrels a day, the highest rate of output in weekly records dating back to January 1983. Bloomberg cited Takashi Hayashida, the chief executive officer of energy-focused hedge fund Elements Capital Inc., as saying that the market “is still oversupplied”.
According to him, the latest rise in geopolitical tensions will have only “a temporary impact on the market, it’s not going to last a long time. US crude inventories were higher than expectations and there’s no reason that WTI will be kept at this level.”
Based on the two front month contracts, Brent was trading at a premium of $7.25 to WTI as of 08:39 GMT. The premium has narrowed from the one-year peak of $13 a barrel hit earlier this month.


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