Key Points
- Brent crude oil fell about 1.3 per cent to $115.18 a barrel
- US West Texas Intermediate (WTI) declined about 1.8 per cent to $101.41 in a later Monday market update
- Brent gained about 6 per cent last week, while WTI advanced 2.3 per cent, following renewed concerns over Middle Eastern oil supplies
ISLAMABAD: Global oil prices fell on Monday after approaching six-month highs last week, as hopes of easing hostilities between the United States and Iran encouraged investors to take profits.
However, continued Houthi attacks on energy infrastructure, Middle East shipping and regional shipping risks kept supply concerns elevated.
Brent crude futures fell about 1.3 per cent to $115.18 a barrel, while US West Texas Intermediate crude futures slipped 1.8 per cent to $101.41.
Prices varied across intraday reports as trading continued, with earlier quotations placing Brent at $115.23 and WTI at $101.51.
Both benchmarks had settled nearly $3 higher on Friday, October 23, after renewed attacks in Saudi Arabia heightened concerns about potential disruptions to energy supplies.
Brent closed Friday at $116.72 a barrel, gaining $6.86, or approximately 6.2 per cent, over the week. WTI finished at $103.27, with market reports putting its weekly gain at 2.3 per cent.
The retreat on Monday followed the rally that brought Brent close to its six-month peak.
The decline reflected a combo of profit-taking and hopes that diplomatic efforts could prevent further escalation, rather than clear evidence that regional oil supplies had returned to normal.
Houthi attacks keep supply risks elevated
The latest rally followed attacks by Yemen’s Houthi movement on Saudi Arabia, including reported targeting of energy infrastructure and Riyadh’s airport.
Saudi authorities said they intercepted additional missiles and drones over the weekend, while the Houthis threatened further attacks.
Saudi Arabia’s position as the world’s largest oil exporter makes any threat to its production, processing facilities or transport infrastructure particularly significant for international energy markets.
Shipping security remains another major concern. The Strait of Hormuz is a critical route for global oil shipments, while the Bab el-Mandeb Strait connects the Red Sea with the Gulf of Aden and provides access towards the Suez Canal.
Diplomacy offers some relief
Expectations of renewed diplomatic engagement between Washington and Tehran, through mediators, ease some concerns about an immediate escalation.
The diplomatic activity offered some relief to the market after last week’s rally. However, the possibility of further military action and ongoing threats to energy infrastructure left investors with little reason to assume that supply risks had disappeared.
READ ALSO: Oil Prices Rally 6% in a Week as Middle East Risks Mount
The Financial Times reported that uncertainty over US policy and the security of regional shipping continued to support a substantial geopolitical premium in oil prices.
Outlook hinges on conflict and shipping
Oil prices will depend largely on whether diplomatic efforts produce a sustained reduction in hostilities and whether commercial shipping and regional exports become more reliable.
Goldman Sachs has outlined a scenario in which oil could rise towards $120 a barrel if attacks on vessels and energy infrastructure intensify.
Conversely, a return to normal export levels could bring Brent down towards $80 a barrel, according to the scenarios reported by The Economic Times.
These are conditional projections, rather than firm price targets.
A further escalation could reverse Monday’s decline, while a durable de-escalation and improved supply flows could remove some of the geopolitical premium currently embedded in prices.
For oil-importing countries such as Pakistan, elevated crude prices pose risks to the import bill, foreign exchange requirements and domestic fuel costs.
The eventual impact will depend on international benchmark prices, freight and insurance charges, the rupee-dollar exchange rate and government fuel-pricing decisions.
