Oil prices jumped on Monday as EU nations considered joining the US in embargoing Russian oil and after Saudi Arabia, the world's largest oil exporter, said it will not be responsible for crude supply shortages following Yemen’s Houthi rebels attacks against the kingdom's energy facilities.
Brent, the global benchmark for two thirds of the world's oil, rose by 4.33 per cent to trade at $112.60 a barrel at 4.18pm on Monday, while West Texas Intermediate, the gauge that tracks US crude, was trading 3.99 per cent higher at $108.88 a barrel.
The Saudi-led military coalition on Sunday said Yemen's Iran-backed Houthi rebels had launched attacks on energy units, including an Aramco liquefied gas plant in the Red Sea port of Yanbu, an oil storage plant in Jeddah, an Aramco oil installation in the southern border town of Jizan, as well as on the facilities of Yanbu Aramco Sinopec Refining Company.
No casualties were reported in the attacks. But the kingdom’s Energy Ministry said there was a temporary drop in output at the Yanbu refinery, which produces 400,000 barrels of oil a day.
It said later in a separate statement that it would not bear any responsibility for shortages in crude supplies to global markets following the attacks on its energy infrastructure.
“The prices fall of last week appears to have run their course now, being an aggressive and panicked correction to the equally panicked and aggressive reaction to the Russian invasion of Ukraine,” Jeffrey Halley, senior market analyst of Asia Pacific at Oanda, said.
The Houthi attacks, warnings of a structural shortfall in production from Opec, and a possible EU embargo on Russian oil for its military offensive in Ukraine were the primary reasons for the rise in prices, he said.
“I believe we have seen the lows in oil now. Brent crude and WTI should settle into a roughly $100-to-$120 range. Even if the Ukraine war ends tomorrow, the world will face a structural energy deficit thanks to Russian sanctions.”
EU governments are mulling the possibility of imposing an oil embargo on Russia when they meet US President Joe Biden this week to discuss their response to Russia's military offensive in Ukraine.
The US announced this month that it would ban crude, gas and coal imports from Russia, intensifying its sanctions on the world's second-largest energy exporter.
Russia supplies about 40 per cent of Europe's gas, while its crude accounts for about 3 per cent of US oil imports, equal to about 200,000 barrels a day.
Despite the sanctions, the conflict has shown no signs of coming to an end. Russia on Monday demanded that Ukrainians in the besieged city of Mariupol lay down their arms in exchange for safe passage out of town, but Ukraine rejected it.
The move came hours after Ukrainian authorities said Moscow’s forces bombed an art school that was sheltering about 400 people.
“We are now awaiting geopolitical developments. Although I don’t rule out a test below $100 on a Ukraine agreement, I believe that any dip to the low $90s by oil will be very well supported,” Mr Halley said.
With supply disruptions continuing, the International Energy Agency last week announced a 10-Point Plan to Cut Oil Use that detailed ways to curb demand and ease the crude price rise.
The new measures proposed by the Paris-based agency include reducing the amount of oil consumed by cars through lower speed limits, working from home, occasional limits on car access to city centres and greater use of high-speed rail, among others. These measures could cut oil demand by 2.7 million barrels per day among advanced economies in four months, the IEA said.
