Oil prices extended a third straight day of losses on Friday after Saudi Arabia found workarounds to keep crude flowing despite fresh fighting with Yemen's Houthis. Traders unwound part of the geopolitical risk premium built up since Houthi drone strikes hit a key Saudi pipeline, even as the Strait of Hormuz stays a flashpoint.
Brent crude fell 2.2% to $102.57 a barrel on Friday, while West Texas Intermediate dropped 1.9% to $100.05, briefly slipping below $100 a barrel. Both benchmarks are on track for a third consecutive session of declines.
Saudi Arabia routes crude around the bottleneck
Saudi Arabia and the Houthis exchanged fresh attacks across their border on Thursday, raising fears the widening Middle East conflict could further disrupt crude oil supplies already strained since the U.S. and Israel attacked Iran in February. Still, reports that Saudi Arabia has found alternative ways to deliver crude shipments to Asian buyers via Oman have eased fears of a deeper supply shock from the pipeline's closure. Riyadh has also been offering additional crude cargoes to Asian refiners through ship-to-ship transfers off Oman's Sohar port, opening another route around the damaged link.
Pipeline repairs move faster than expected
The East-West pipeline normally carries 4 million to 5 million barrels a day from Saudi Arabia's oil fields to the Red Sea port of Yanbu, before Houthi drone strikes knocked it offline last week. According to Bloomberg News, Riyadh is seeking to restore about half of the pipeline's capacity within days, faster than earlier estimates that repairs could take weeks. Phillip Nova analyst Priyanka Sachdeva said, as quoted by Reuters, that "some of the geopolitical premium can unwind further" if Hormuz traffic normalizes.
Hormuz remains the wildcard
The market's calm has limits. Iran's Revolutionary Guards Navy said it struck a Togo-flagged tanker attempting an "illegal passage" through the Strait of Hormuz on Friday, according to Iranian state media. President Trump also told Axios he is nearing a decision on whether to resume large-scale military action against Iran, with a meeting planned next week alongside leaders from Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait and Oman at the United Nations General Assembly.
XS.com's Simon-Peter Massabni said the latest decline reflects a partial unwinding of the geopolitical risk premium rather than a fundamental shift in the oil market, adding that prices will likely stay more sensitive to geopolitical developments than to traditional supply-and-demand signals in the near term.
Sources: CNBC, Investing.com, Investing.com
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