Oil posted its first weekly gain in three weeks amid supply concerns as Saudi Arabia’s energy assets were attacked by Houthi rebels and Russia continued its military offensive in Ukraine. Oil prices have also rallied because of rising demand globally as economies recover from the coronavirus pandemic exceed crude production.
Brent, the global benchmark for two thirds of the world's oil, rose to $120.65 a barrel at the close of trading on Friday. West Texas Intermediate, the gauge that tracks US crude, settled at $113.90 a barrel.
Both benchmarks posted their first weekly gains in three weeks. Brent rose more than 11.5 per cent and WTI gained 8.8 per cent amid strong demand and supply shortage concerns. The inability of EU countries to agree on banning Russian oil and gas has also led to surge in prices.
“The EU failing to agree a ban may provide temporary relief but it doesn't change the path of travel which is strong demand and declining supply,” Craig Erlam, a senior market analyst at Oanda, said. “And there's little indication of that improving, with the rest of Opec+ happy to turn a blind eye in the absence of Kremlin support.”
EU countries were divided on whether to ban Russian oil and gas during a summit with US President Joe Biden last week. European countries are heavily dependent on Russian gas and imported 155 billion cubic metres of natural gas from Russia last year, which accounted for about 45 per cent of EU gas imports and close to 40 per cent of its total gas consumption.
A number of oil installations in Saudi Arabia came under attack supporting oil prices. The Saudi-led military coalition 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 oil installation in the southern border town of Jizan, as well as on the facilities of the 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.
The kingdom, Opec’s largest oil producer and the world's largest exporter, also said it will not bear any responsibility for shortages in crude supplies to global markets following the attacks by Houthi militia.
“The long-term outlook remains comfortably bullish as the combination of tight global supply, and the expectation that the global oil demand will reach a record high in the second half of the year should throw a floor under the short-term price pullbacks,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said.
Oil prices could hit $240 per barrel this summer in the worst-case scenario if western countries roll out sanctions on Russia’s oil exports all together, Bjornar Tonhaugen, head of oil markets at Rystad Energy, said earlier this month.
"Market volatility is at an all-time high, with prices surging on the expectation that supply will further tighten due to restrictive sanctions," he said.
Russia is the world's second-largest energy exporter. It accounts for about 10 per cent of the world’s energy output, including 17 per cent of its natural gas and 12 per cent of its oil. The US and the UK have already banned Russian oil imports.
The International Energy Agency said its members are ready to release more oil into the market “if needed” to tackle soaring prices after Russia's military offensive in Ukraine.
