(Mar 26): Oil rose for a fifth day in New York as Saudi Arabia bombed rebel targets in Yemen with its allies, renewing concern conflict will spread in the Middle East.
Futures surged as much as 5.8 percent and headed for the biggest rally over five days since at least February 2011. King Salman ordered airstrikes against Shiite Houthi positions after an appeal from Yemen’s President Abdurabuh Mansur Hadi. Prices slid earlier Thursday after a government report showed U.S. crude stockpiles and production swelled last week to the highest levels in more than three decades.
While the expanding glut in the U.S. and OPEC’s decision to maintain its output target have driven prices to a six-year low, the Saudi offensive brings the market’s focus back to the Middle East and the potential for a supply disruption in the world’s largest oil-producing region. Yemen’s sits on a chokepoint in international shipping, making it important for global energy trade, according to the Energy Information Administration.
“Yemen is not an oil producer of great significance but it’s located geographically and politically in a very important part of the Middle East,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone. “There’s always potential for a really major and long-term disruption, which would exceed any inventory levels, and there doesn’t seem to be any allowance for that in current pricing.”
West Texas Intermediate for May delivery gained as much as $2.85 to $52.06 a barrel in electronic trading on the New York Mercantile Exchange and was at $51.96 at 3:48 p.m. Singapore time. The contract advanced $1.70 to $49.21 on Wednesday, the highest close since March 9. The volume of all futures traded was more than threefold the 100-day average. Prices are up about 18 percent in the past five days.
Brent for May settlement climbed as much as $3.23, or 5.7 percent, to $59.71 a barrel on the London-based ICE Futures Europe exchange. It added $1.37 to $56.48 on Wednesday. The European benchmark crude traded at a premium of $7.42 to WTI.
More than 3.4 million barrels a day of oil was shipped through the Bab el-Mandeb bottleneck in 2013, according to the EIA, the Energy Department’s statistical arm. Closing the 2 mile (3.2 kilometer) strait would force tankers to sail around the southern tip of Africa to reach European, North American, and South American markets, it said.
The United Arab Emirates, Bahrain, Qatar and Kuwait also responded to the request from Yemen’s president, according to a statement carried by the official Saudi Press Agency. The airstrikes on Sana’a come after forces loyal to the rebel group marched on the southern port city of Aden.
U.S. President Barack Obama has “authorized the provision of logistical and intelligence support” for the operation, the White House said in a statement.
Saudi Arabia, the world’s biggest oil exporter, has accused Iran of fomenting unrest in Yemen, which has emerged as the latest ground for a proxy confrontation between the two regional rivals. Both nations are members of the Organization of Petroleum Exporting Countries, the group that pumps about 40 percent of the world’s oil.
Saudi Arabia led OPEC’s decision in November to resist calls to reduce its output target of 30 million barrels a day, a resolution that Iranian Oil Minister Bijan Namdar Zanganeh said was “not in line with what we wanted.”
Saudi Arabia produced 9.85 million barrels a day in February, making it the group’s biggest producer, according to data compiled by Bloomberg. Iran is the fifth-largest with output of 2.78 million a day.
“The crude market is still oversupplied,” said Takashi Hayashida, the chief executive officer of Elements Capital Inc., a Tokyo-based hedge fund that focuses on energy. “There will be a temporary impact on the market, it’s not going to last a long time. U.S. crude inventories were higher than expectations and there’s no reason that WTI will be kept at this level.”
Crude stockpiles increased by 8.2 million barrels to 466.7 million through March 20, the highest level in weekly EIA records dating back to August 1982. Production accelerated to 9.42 million barrels a day, the fastest pace since at least January 1983.
Inventories at Cushing, Oklahoma, the delivery point for WTI contracts and the nation’s biggest oil-storage hub, expanded by 1.9 million barrels to a record 56.3 million, according to Wednesday’s report.
The number of outstanding options contracts that pay out if oil hits $100 a barrel by December 2018 was 1,733 at the beginning of last week, according to exchange data. That’s surged to 2,743, or about 2.7 million barrels, representing 0.08 percent of the 3.4 million options contracts outstanding.