Oil: Geopolitical supply risks tilt bias higher – OCBC

OCBC strategist Christopher Wong says oil risks have risen again as disruptions to Saudi export infrastructure and renewed concerns around the Strait of Hormuz and Bab el-Mandeb keep supply risks elevated. He argues that Brent’s pullback from near $110/bbl may prove limited, with a renewed rise in oil threatening to complicate the inflation outlook, support yields and weigh on risk sentiment, while a swift restoration of flows or signs of de-escalation could reduce the geopolitical premium.

Brent risks skewed to renewed gains

"Oil risks have picked up again over the weekend. Saudi Arabia temporarily shut its East-West pipeline after a drone attack, affecting a key alternative export route while traffic through the Strait of Hormuz remains heavily disrupted."

"At the same time, developments around Bab el-Mandeb have raised concerns over another major shipping chokepoint, while reports of a vessel being struck in the Strait of Hormuz added to the unease."

"This raises the risk that Friday’s retreat in Brent from close to US$110/bbl may not extend much further. Markets will be watching how quickly Saudi pipeline operations resume and whether attacks on shipping and energy infrastructure broaden."

"A renewed move higher in oil would complicate the inflation backdrop, keep yields supported and weigh on risk sentiment."

"On the other hand, a quick restoration of flows or signs of de-escalation could see some of the geopolitical premium fade. For now, the balance of risks for oil still looks tilted higher."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)