Brent Crude Prices Slip as Market Priced in Higher Supply Disruption Risk
Brent crude prices slipped below $100 per barrel on Friday, but the weekly gain of 13.5% suggests that the market is pricing in a higher risk of supply disruptions.
The threat to global oil supply comes from two main sources: the Bab el-Mandeb Strait and the Hormuz shipping route. Traffic through Hormuz was already restricted after renewed US-Iran fighting, but recent attacks on tankers carrying Saudi crude have put pressure on the alternative corridor through Bab el-Mandeb.
The Houthi forces' attack on two tankers has led to concerns that the Strait may be closed, forcing vessels to take longer routes around southern Africa and increasing costs. This 'double hit' on Middle Eastern exports could reduce global supplies and push prices higher, according to analyst Ellen Fraser of Baringa.
The disruption extends beyond damaged barrels, as shipping companies may reroute vessels or demand higher insurance premiums, tightening prompt availability before producers can respond with reduced output.