Oil prices fell to their lowest level in 11 days on Monday, as investors looked for signs that the US-Iran conflict could move toward diplomacy and watched for a recovery in Saudi Arabia’s oil shipments.
Because of fears that the US-Iran conflict could disrupt Middle East oil supplies, oil prices had gained a risk premium. If the possibility of a wider conflict falls, traders have less reason to keep that extra risk premium in oil prices.
Oil market outlook
Because of the conflict, investors are therefore removing some of the extra risk they had priced into crude. A Revolutionary Guards spokesman said Iran would use new weapons and target locations that it had not attacked before, Fars news agency reported.
“It seems that a degree of risk premium is being removed from oil prices on hopes that a diplomatic path to de-escalate the US-Iran war may arrive this week,” said Tim Waterer, chief market analyst at KCM Trade, according to Reuters. The Houthis also said they attacked an Aramco facility in Yanbu on Saudi Arabia’s Red Sea coast. Yanbu is an important location for Saudi oil exports, making any disruption there important for global crude markets. Iran has warned that it could escalate further if the US launches another offensive. For oil markets, the combination of possible US-Iran diplomacy and stronger Saudi shipments is easing supply fears.
Because saudi oil is still reaching global markets despite the disruption, that shift is important. The attacks on Saudi Arabia’s East-West pipeline have changed how the country is moving its oil. The attacks prompted Saudi state energy company Saudi Aramco to increase exports through the Strait of Hormuz this month and next after stopping some shipments through Yanbu. This has reduced some fears that the conflict would cause a major shortage of crude supplies.
