On Friday, April 29, 2023, oil prices increased by $3.55, reaching $116.72 per barrel, marking the highest closing price for Brent crude since April 29. This price increase occurred amid concerns over energy supply disruptions from the Middle East.
Reasons for the Increase in Oil Prices
The rise in oil prices is attributed to recent attacks by Ansar Allah (Houthis) on Saudi Arabia's energy infrastructure and reports of an oil spill off the coast of the United Arab Emirates. Following these incidents, the price of West Texas Intermediate crude oil also rose by $3.80, reaching $103.27 per barrel.
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Adam Trenkewitz, senior multi-asset market strategist at LPL Financial, pointed to increasing concerns over supply disruptions, stating that this issue, especially following the Ansar Allah attacks on Saudi Arabia's energy infrastructure, has driven up oil prices.
Ansar Allah Attacks and Oil Spill
Saudi Aramco has recently ordered the evacuation of its headquarters in Dhahran. This comes as tensions between Saudi Arabia, the world's largest crude oil exporter, and the Houthis in Yemen have escalated. Additionally, the UAE's Ministry of Climate Change and Environment reported identifying an oil spill from a tanker near the coast of Umm Al-Quwain, but the tanker responsible for the spill has not yet been identified.
Shipping sources previously reported that the giant tanker "Gem No. 2" was targeted by an unknown projectile 13 nautical miles off the coast of the UAE. This situation has raised concerns about the continuation of attacks and has impacted the market.
Andrew Lipow, president of Lipow Oil Associates, also noted market concerns regarding the continuation of Iranian attacks on tankers, stating that while the volume of oil passing through the Strait of Hormuz has increased, this situation could change at any moment.
Impacts on the Global Oil Market
Conflicts between Ansar Allah and the Saudi-led coalition have intensified since the Houthis advanced towards the Bab-el-Mandeb Strait last month. This strait is considered one of the critical shipping chokepoints, and increased tensions in this area could lead to larger disruptions in global oil supply.
Data collected by a Washington-based think tank indicates that October 2023 was the worst month for attacks on commercial vessels in the Strait of Hormuz and surrounding waterways. This situation could have serious implications for oil prices and global energy security.
In response to supply disruptions, the U.S. Department of Energy has agreed to an emergency exchange of up to 400,000 barrels of crude oil from the country's strategic reserves. U.S. strategic oil reserves have now reached their lowest level since 1982.
These developments, alongside similar actions in other countries such as Germany, which has issued a call to sell some of its strategic oil reserves, reflect the critical state of the oil market and countries' efforts to manage supply and prices during a crisis.
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