Oil Rises as Middle East Supply Risks Persist
Oil prices moved higher on Thursday as traders continued to assess the risks to Middle Eastern energy supplies following a rise in attacks on shipping and growing tensions around the region.
The latest increase comes even though crude exports from the Middle East have recovered toward levels seen before the conflict. Traders remain concerned that the improvement may not be sustainable if attacks on vessels and energy infrastructure continue.
Brent crude was trading above $101 a barrel, while U.S. crude remained around $89 a barrel.
Shipping risks become increasingly important
The security of shipping routes has become a major concern for oil traders because Middle Eastern crude and refined products depend heavily on maritime transportation.
The recent attacks have increased the risk premium in oil prices. Even if physical crude production remains relatively stable, higher shipping costs and the possibility of further disruptions can raise the price of delivering oil to international buyers.
The situation around the Strait of Hormuz remains particularly important because the waterway is one of the world’s most significant energy transit routes.
Gulf of Mexico adds another supply risk
The Middle East is not the only source of uncertainty for the oil market.
Tropical Storm Isaias is approaching the Gulf of Mexico, prompting major oil producers to reduce offshore operations. Shell has evacuated personnel and shut production at several offshore assets, while Chevron has initiated shutdown procedures at four facilities.
The National Hurricane Center expects the storm to strengthen into a hurricane before reaching the southern U.S. coast.
The combination of Middle East shipping risks and weather-related disruptions in the United States means oil traders are facing supply uncertainty from several directions at the same time.
The market is therefore balancing recovering Middle East exports against the possibility that geopolitical tensions, shipping attacks or severe weather could reduce available supplies again.
