[International Oil Prices] Plunge More Than 2% on Hopes for Oman Talks, but Surge About 9% for the Week

[Financial News]  

International oil prices plunged more than 2% on September 11 (local time).
Oil prices fell for now despite mounting concerns over supply disruptions. Saudi Arabia was attacked and halted operations of its east-west pipeline, which had been used to bypass the Strait of Hormuz. Reports also said that the Houthi rebels had seized Mocha, a port city on the coast of the Bab el-Mandeb Strait, and Perim Island in the middle of the strait.
Prices nevertheless remained elevated above $100 per barrel and surged about 9% on a weekly basis.
Brent crude for November delivery, the benchmark for international oil prices, settled at $104.61 per barrel, down 2.8% from the previous session.
West Texas Intermediate (WTI) crude for October delivery, the U.S. benchmark, fell 2.4% to settle at $100.05 per barrel.
Through the previous session, Brent crude had risen for five consecutive trading days and WTI for eight. On a weekly basis, Brent crude jumped 8.7% and WTI climbed 9.4%, amounting to gains of about 9%.
Oil prices turned lower on profit-taking and a faint glimmer of hope that the Strait of Hormuz could return to normal.
Prices fell after Iran’s state-run Press TV reported that Iran would meet with Gulf states in Oman on September 14 to discuss the Strait of Hormuz.
Nevertheless, the prevailing view is that the upward trend in oil prices will continue.
That is because oil export routes for Saudi Arabia and other Gulf oil producers are effectively blocked. Iran has seized control of the Strait of Hormuz, while the Houthi rebels, backed by Iran, are strengthening their control over the Bab el-Mandeb Strait, which connects the Red Sea and the Indian Ocean. Unless the Oman meeting on September 14 produces a breakthrough, disruptions to Arab and Middle Eastern oil supplies will inevitably worsen.
In a research note issued on the morning of September 11, Deutsche Bank’s Jim Reid warned, "Once again, geopolitical fear has taken over everything. Concerns about the safety of navigation in the Red Sea are growing, and Saudi Arabia’s oil exports could be effectively blocked." He added, "The situation has been compounded by the adverse news that Saudi oil production has fallen to its lowest level since 1990."
Tamas Varga, an analyst at PVM Oil Associates, noted that the key question is whether the current decline in supply will be structural or temporary.
Varga said oil prices could still rise to $126, their peak in April, amid further gains. He also cautioned that the fact that higher oil prices lead to weaker demand cannot be overlooked.
He emphasized that the current situation differs from 1990, during the First Gulf War, noting that oil demand has become more price-elastic than it was 35 years ago. He added that the shock is also less severe because renewable energy can meet part of oil demand.

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