The world oil market has been rattled in the past week by regional political developments, although prices have been pulled sharply in different directions as perceptions of their likely impact has shifted.
Benchmark North Sea Brent surged 7 per cent in the middle of last week, closing at US$59.19 a barrel on Thursday, as the civil war in Yemen became a full-blown proxy war between Iranian-backed Houthi rebels and the government of Abdrabbu Mansour Hadi, backed by a Saudi Arabian-led coalition of countries including the UAE.
The coalition bombed rebel positions, while at the weekend its leaders at an Arab League summit in Sharm El Sheikh called for a joint Arab military force to deal with the regional threats.
For the oil market, however, the ratcheting up of regional conflict was balanced by apparent progress toward a deal between Iran and international negotiators over its nuclear ambitions. This development could lead to a lifting of sanctions that have kept about 700,000 barrels per day of Iranian oil off the markets for the past four years.
The movement on talks over Iran plus further bearish news in the United States, where oil inventories reached a new record last week, helped to push oil prices down by 5 per cent on Friday, to leave Brent at $56.41. Prices continued to fall yesterday, with Brent down 62 cents at $55.79 late in the day UAE time.
“I think it is a pretty big downward risk to the market more than anything,” said Tom Pugh, a commodities analyst at Capital Economics.
“I can’t see Yemen escalating too much,” he added. “Iran doesn’t want to do anything that would put the talks in jeopardy.”
After the initial surge, the oil market seemed to concur that more Iranian oil supply was the bigger risk.
amcauley@thenational.ae
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