U.S. crude oil prices dropped over 2% on Monday as traders balanced the risks of further attacks on Saudi Arabian energy infrastructure with concerns that high prices could reduce demand. U.S. West Texas Intermediate futures fell 2.19% to $101 a barrel, while Brent crude futures declined 1.89% to $114.51 a barrel.
The pullback came after a sharp rally on Friday following attacks by Yemen's Houthi militants on Saudi Arabia, which reignited fears of disruptions to global energy supplies. Tensions remained high over the weekend as the Houthis claimed to have targeted Saudi Arabia's main airport in Riyadh and oil facilities on Saturday. Saudi authorities reported intercepting additional missiles and drones.
Michael Alfaro, chief investment officer at Gallo Partners, told CNBC that geopolitical uncertainty had already added roughly $20 a barrel to oil prices. He warned that a substantial strike on Saudi Arabia's East-West pipeline or refining infrastructure could send prices sharply higher, but further gains could eventually undermine consumption. "What we would likely see if oil pushed above 120, 130, 140 dollars a barrel for Brent, that is, you're going to see more demand destruction," Alfaro said.
Beyond the immediate threat to crude supplies, damage to refining infrastructure could pose a more persistent challenge to global energy markets. Alfaro warned that the disruptions could develop into a longer-term structural problem extending into 2027 and beyond. Meanwhile, Saudi Arabia plans to begin storing crude oil in Singapore from the second half of 2027 to strengthen its Asian supply chain.
In the U.S., the Energy Department authorized the release of up to 400,000 barrels from the Strategic Petroleum Reserve to address a supply disruption at a Louisiana refinery. However, the prospect of additional supply from American producers remains uncertain, with companies reluctant to commit to major new investments amid volatile prices and geopolitical risks.