Oil prices fell on Monday, hours after an early sharp price rise caused by a drone attack on Saudi oil infrastructure, per a Reuters report. Saudi Arabia later confirmed the attack.
In the early hours of the morning, both Brent crude and West Texas Intermediate were up by close to 2 percent from Friday’s close, following the news.
But by 10:30 a.m. ET, the price of a Brent barrel sank back to $68.72, a loss of nearly 1% on the day.
Yemen Houthis said they had fired 14 drones and eight ballistic missiles at oil facilities at the Saudi port of Ras Tanura and military targets in three other Saudi cities.
“Such acts of sabotage do not only target the Kingdom of Saudi Arabia, but also the security and stability of energy supplies to the world, and therefore, the global economy,” a military spokesman said.
The Saudi Energy Ministry later confirmed a drone hit: the target was an oil tank farm at Ras Tanura. However, a military spokesman for Riyadh said the attack had not resulted in any property loss.
The news of the attacks comes just days after another announcement by the Houthis that they had hit an Aramco facility in Jeddah. That announcement came a few days after Saudi Arabia said it had intercepted a ballistic missile fired by the Houthis over Riyadh.
Related Video: Goldman Calls $70 Oil in Q2, But Jet Fuel Is The Joker
Since 2015, Saudi Arabia and Iran have been essentially fighting a proxy war in Yemen, where the Saudis lead a military Arab coalition to “restore legitimacy” in the country, while the Houthi movement, which holds the capital Sanaa, is backed by Iran.
The Houthi rebels have often claimed they have hit oil infrastructure assets in Saudi Arabia and have taken responsibility for several high-profile attacks in the region.
The most notable attack that the Yemeni rebel group claimed responsibility for was the September 2019 attacks on Saudi Aramco’s oil facilities. That attack cut off 5 percent of the daily global supply for weeks, sending oil prices soaring. But Saudi Arabia and the United States have said that it was Iran—and not the Houthis—that was responsible for the attack.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- India: OPEC+ Decision Could Derail Oil Demand Recovery
- Oil Soars As OPEC+ Sources Suggest No Production Increase
- Will Private Shale Firms Crush The OPEC Oil Rally?
Still, Saudi oil infrastructure and assets will continue to be vulnerable to attacks by Iran’s allies in Yemen, the Houthis, as along as the Saudi war on Yemen continues.
Therefore, the best way for Saudi Arabia to ensure the safety of its oil infrastructure is to end its war in Yemen and build bridges of trust with Iran leading to rapprochement between them.
Brent crude price could hit $70-$80 a barrel in the third quarter of 2021 or even earlier underpinned by OPEC+’s recent decision to extend the current production cuts until the end of April and more importantly by the fact that oil is now in a bull market that could last many years.
Brent could be headed towards $100 oil in the second half of 2022 or the first quarter of 2023 because of a fast-tightening market and the possibility of a demand-supply deficit estimated at 10-15 million barrels a day by then triggered by a serious decline in global oil industry’s investments in oil projects.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London