Two Middle East Flashpoints Send Oil Above $100; Wall Street Sees $150 Risk

US-Iran, Saudi-Houthi Clashes

Wall Street Says $150 in Fourth Quarter Is Possible

International oil prices climbed to the brink of $100 a barrel on September 8, driven by growing concern that crude supplies could be disrupted after Saudi Arabian energy facilities came under attack from Iran-aligned Houthi rebels.

On London’s ICE Futures Europe exchange, November Brent crude settled up 92 cents, or 0.95%, at $97.92 a barrel. On September 9, it rose above $100 intraday, reaching its highest level since July 24. On the New York Mercantile Exchange, October West Texas Intermediate futures settled at $93.03 a barrel, up $1.55, or 1.69%.

If fighting between Saudi Arabia and the Houthis intensifies, the Bab el-Mandeb Strait, which carries about 5% of global oil shipments, could be blocked. Global investment banks have lifted their fourth-quarter oil price forecasts to as high as $150 a barrel. Kim Fustier, HSBC’s head of energy research, said concerns that crude shortages may last longer than expected are now being reflected more fully in prices.

Oil Could Reach $120 if Energy Facilities Are Hit Again

Middle East Escalation Pushes Intraday Prices Above $100, Though North American Output May Cap Gains

Yemen’s Houthi rebels, which are believed to be backed by Iran, attacked four cities in southern Saudi Arabia — Abha, Khamis Mushait, Jazan and Najran — as well as facilities owned by state energy company Aramco on September 8, using drones and missiles. Parts of the energy facilities caught fire and operations were halted. Seventy-three people were reported injured.

Since the outbreak of the war with Iran, Saudi Arabia has moved crude across the Arabian Peninsula by pipeline to its western Red Sea coast for export. After the Houthis struck western energy facilities, concern grew that even the route bypassing the Strait of Hormuz may no longer be safe.

The situation in the Strait of Hormuz also deteriorated. The US military attacked a tanker linked to Iran’s Islamic Revolutionary Guard Corps on September 8, and Iran retaliated with military operations targeting US destroyers and bases. Iran also designated a maritime blockade zone in the Strait of Hormuz and warned of attacks on energy facilities and oil tankers.

That has added weight to forecasts that average crude prices in the fourth quarter will rise well above $100 a barrel. Major investment banks have recently raised their Brent forecasts across the board. Bank of America said in a report released on September 8 that Brent could trade between $95 and $120 a barrel if low-level clashes that constrain oil supply continue through year-end.

Goldman Sachs raised its year-end Brent forecast by $5, from $80, to reflect the possibility that disruptions to seaborne shipments could continue into next year. The bank sees prices reaching $120 if attacks by Iran and the Houthi rebels on vessels intensify from current levels. David Fyfe, chief economist at Argus, said current oil prices show supply conditions are extremely tight.

Some analysts, however, argue crude may not rise to $100 to $120 a barrel. They cite oil flows through the Strait of Hormuz and alternative routes holding up better than feared, rising production in non-OPEC countries such as the US and Canada, and a structural decline in China’s crude demand.

Hwang Jung-soo, New York correspondent / Kim Dong-hyun, reporter hjs@hankyung.com