Middle East tensions could support oil prices
Militant attacks on Saudi oil infrastructure may support prices this week while natural gas markets prepare for cold weather in the coming weeks.
WTI and Brent traded slightly higher on Monday, with WTI poised to break $60 after a week of floating around the $59 region.
We’ve had reports that further price action will be largely related to US vaccine rollout and Covid-19 management in the short term. Rising cases stateside, plus snags in vaccine supply chains, may put a bit of pressure on demand recovery in the world’s largest economy going forward. The quicker the US returns to normality, it’s not too much of a stretch to suggest the quicker the oil market rebalances too.
At 498.3 million barrels, U.S. crude oil inventories are about 3% above the five year average for this time of year, according to EIA report for week ending April 2nd. Over the past four weeks, crude oil imports averaged about 5.8 million barrels per day, 5.0% less than the same four-week period last year.
Away from the US, tensions in the Middle East may put a support under prices. Houthi militants from Yemen have stated they have launched 17 drone and two ballistic missile attacks on Saudi targets recently.
Two of the targets are Aramco facilities in Jubail and Jeddah. Aramco’s refinery in Jeddah was decommissioned in 2017 but it has a petroleum products distribution plant there that the Houthis have previously targeted.
The Saudi government has yet to respond, according to Reuters, but Aramco has said it will be committed to reopening targeted facilities as quickly as possible.
We’ve seen attacks from Yemen-based militant organisations on Aramco sites throughout the past couple of years. Each time, this has given a little bump to oil prices, thanks in part to the resulting small supply squeezes. Will we see the same here?
Natural gas trading
Natural gas prices moved higher at the end of last week and continued to do so on Monday, showing 1.46% growth.
Cold weather patterns about to hit key demand areas of the US could help support natural gas prices beyond the $2.50/MMBtu held level too.
EIA estimates that natural gas inventories ended in March 2021 at nearly 1.8 Tcf, which is 2% lower than the five-year (2016–20) average. Winter 20-21 saw more natural gas withdrawals and consumption thanks to plunging temperatures, but warmer temperatures this summer are likely to result in increased storage volumes.