Synopsis

Crude Oil Price : On Tuesday, oil prices experienced a significant rise as assaults on Saudi energy infrastructure intensified. The key East-West pipeline in the kingdom is currently down, raising alarms over possible supply disruptions. The situation has worsened with recent attacks by Iran-backed Houthi forces, leading experts to warn of continued price increases. Goldman Sachs suggests oil could hit $120 a barrel if these tensions prolong.

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Oil prices climbed more than a percent on Tuesday as concerns over supply disruptions intensified after attacks on Saudi Arabia's energy infrastructure left the kingdom's East-West pipeline offline, raising fresh doubts over efforts to reduce shipping risks in the Gulf.

Iran-backed Houthi forces in Yemen launched fresh attacks on Saudi Arabia on Monday, while Gulf Arab states postponed planned discussions with Iran. The developments added to concerns that the Middle East conflict could widen and disrupt global oil supplies.

Read more: Rice gets pricier in India as US-Iran war sends countries scrambling to secure food supplies

Brent crude futures rose $1.24, or 1.18%, to $107 a barrel after gaining 1% in the previous session. U.S. West Texas Intermediate futures were up $1.29, or 1.24%, at $102.65 a barrel, following a 1.3% rise on Monday.

The Houthis attacked the Khamis Mushait military airbase in southern Saudi Arabia with missiles and drones, hitting aircraft hangars, radar systems, runways and ammunition depots. The attack was carried out in retaliation for Saudi strikes in Yemen.

It came after attacks on Saudi Arabia on Friday, which Riyadh blamed on Iranian-backed fighters in Iraq. Those attacks disrupted the country's East-West pipeline, a key route that allows Saudi Arabia to bypass the blockaded Strait of Hormuz when exporting oil.

According to a Reuters report, vessel traffic through the Strait of Hormuz also fell to fewer than 10 transits a day over the weekend, compared with a 10-day average of 14. The decline has raised concerns over the strategic waterway, which typically carried about one-fifth of global oil supplies before the U.S.-Israeli war on Iran began on February 28.

The recent escalation gains significance as Saudi Arabia is the world's biggest oil exporter and has been using the pipeline to reroute around 4 million barrels per day, equivalent to around 4% of global supply, to the port of Yanbu on the Red Sea.

Read more: Trump says Iran wants deal as Gulf talks delayed, Houthis strike Saudi Arabia

The possibility of further disruptions has increasingly shifted the risks for oil prices to the upside. Daan Struyven, co-head of global commodities research at Goldman Sachs, said recent attacks indicated that shipping disruptions could spread and become more severe.

Goldman Sachs has outlined a scenario in which oil prices could climb as high as $120 a barrel if attacks on Middle Eastern vessels intensify. If exports return to normal, however, the bank expects oil prices to move back towards $80 a barrel. Struyven told Bloomberg that shipping risks had become an important factor driving oil prices.

Struyven said Goldman Sachs sees "meaningful upside to crude oil prices" and also expects natural gas and refined product prices to rise. He said supply shocks in gas and fuels are larger than those in the crude market.

The duration of the disruption will be critical for oil prices. JPMorgan estimates that each additional month of disruption could add around $7 to $8 a barrel to Brent prices. If the disruption continues for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.

Citi has raised its average Brent crude price forecast for the third quarter to $86 a barrel from $80, citing a longer-than-expected timeline for the reopening of the Strait of Hormuz.

ANZ analysts have also lifted their short-term Brent forecast to $95 a barrel and warned that prices could rise further if the Middle East conflict escalates. They said a prolonged standoff involving calibrated military action by the US and Iran appeared to be the most likely scenario, which could delay the return of full Middle Eastern supply.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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