Oil: Supply risks offset reserve releases – OCBC

FXStreet Insights Team FXStreet

OCBC’s FX and commodities strategists highlight renewed Middle East supply risks that pushed oil prices higher despite strategic reserve releases. Brent briefly touched USD110/bbl as Iranian attacks on shipping and escalating Saudi-Houthi tensions raised concerns over key oil export routes. Disruptions to Saudi Arabia’s alternative export infrastructure could further constrain crude supplies, outweighing efforts by the IEA and US to ease market pressures.

Middle East tensions drive crude higher

"News of potential strategic reserve releases kept oil prices in check for much of last week. But crude surged on Friday as renewed attacks on shipping threatened the recovery in Middle East oil flows. Brent briefly touched USD110/bbl before paring gains."

"Iranian attacks on commercial shipping have intensified and broadened beyond tankers, raising concerns over the sustainability of the recovery in flows through and around the Strait of Hormuz. Meanwhile, escalating Saudi-Houthi tensions have put Saudi Arabia's alternative export infrastructure back in focus. A Saudi-led coalition intercepted a ballistic missile headed towards Yanbu on Friday."

"The key risk is that disruption spreads from Hormuz to the infrastructure designed to bypass it. Saudi Arabia's East-West Pipeline can carry around 7mn bpd to the Red Sea and was running at 5.8mn bpd in early October. A serious disruption to the pipeline or Yanbu would therefore constrain an important alternative route for Saudi crude exports."

"The oil rally also came despite government efforts to put more supply into the market. The IEA agreed to accelerate its remaining emergency stock releases, including more than 20mn barrels of diesel, while the US solicited an exchange of up to 17mn barrels of SPR crude. Both measures form part of the broader emergency response agreed earlier this year, rather than representing entirely new supply commitments."

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