Oil prices fall as Saudi-Iranian tensions ease ... “War premium alone is $20”

[Financial News, New York—Lee Byung-chul, correspondent] Saudi Arabia and Iran have begun talks aimed at easing tensions in the Middle East, sending international oil prices lower. However, concerns about disruptions to crude oil supplies remain as Yemen’s Houthi rebels continue to threaten attacks on Saudi energy facilities. Analysts say geopolitical uncertainty in the Middle East has added a risk premium of about $20 a barrel to international oil prices.
 On the 26th (local time), Brent crude oil futures settled at $115.81 a barrel, down $0.91 from the previous session. They briefly topped $117 during the session before turning lower. U.S. West Texas Intermediate (WTI) futures also closed down $1.51 at $101.76 a barrel. International oil prices are up about 12% so far this month.
The day’s decline in oil prices was influenced by high-level talks between Saudi Arabia and Iran.
Saudi Defense Minister Khalid bin Salman met Iranian President Masoud Pezeshkian and Mohsen Rezaei, secretary-general of Iran’s Supreme National Security Council (SNSC), in Tehran on the same day. Senior military and intelligence officials from Pakistan and Turkey also attended the talks.
However, concerns about crude oil supply in the Middle East persist. The Houthi rebels claimed that they fired missiles at the international airport in Riyadh, the Saudi capital, and attacked oil pumping facilities with drones that day. Saudi authorities did not confirm whether the attacks took place.
Markets are concerned that Saudi oil production facilities, pipelines and refineries could face further attacks. Global crude oil inventories have plunged amid the conflict in the Middle East, which has continued for eight months. U.S. Strategic Petroleum Reserve (SPR) stocks have also fallen to their lowest level since 1982.
Michael Alfaro, chief investment officer (CIO) at Gallo Partners, told CNBC, “Uncertainty in the market is extremely high right now,” adding, “The risk premium reflected in international oil prices is about $20 a barrel.”
He warned that international oil prices could surge if Saudi Arabia’s East-West Pipeline or its refineries came under a large-scale attack. He added, however, that if oil prices exceed $120 a barrel, high prices could curb oil consumption in a phenomenon known as “demand destruction.”




[email protected] Correspondent Lee Byung-chul Reporter