China asked Iran to curb Houthi attacks on Saudi Arabia; oil prices retreated
Saudi Arabia and the Houthis have exchanged new attacks. Oil prices fell on Friday after China asked Iran to limit Houthi attacks on Saudi oil infrastructure, attacks that threatened an alternative oil export route in the Middle East.
Oil prices are hovering above $100 per barrel. Brent crude recorded a weekly decline for the first time in three weeks.
Brent crude futures closed at $104.87 per barrel, down 95 cents (0.93 percent). WTI crude futures fell by $1.61 (1.58 percent) to settle at $100.30 per barrel.
Oil prices have shown a steady upward trend over the past few weeks as the US and Iran have resumed attacks on one another and pro-Iran Houthi forces have stepped up military activities.
These recent developments, combined with global refinery capacity issues, have driven up prices for key fuels like diesel in major markets. The current situation is not a supply problem; it is a refinery problem. Active refinery capacity in the US is expected to drop by 371,000 barrels per day next week.
Despite reports of China's intervention, the outlook for the coming months remains uncertain.
According to Friday's data, the Strait of Hormuz remains largely quiet; only four commodity vessels passed through the strait on Thursday, well below the 10-day average of approximately 16.
Following damage to the East-West pipeline in an attack last week, crude oil loadings at Saudi Arabia's Red Sea export hub of Yanbu were suspended, and Riyadh cancelled some shipments destined for Europe. Driven by this development, oil prices approached four-month highs early in the week.
Saudi Aramco informed some customers that there would be no crude oil deliveries next month following the attack on the critical pipeline stretching to Saudi Arabia's Red Sea coast.
Amidst an environment where spreading Middle East conflicts pose new threats to supply security, Saudi Arabia and the Iran-backed Houthis in Yemen exchanged fresh cross-border attacks on Thursday.
Three pumping stations serving Saudi Arabia's East-West Pipeline were damaged in last week's attack; the duration of the repair process remains uncertain.
Saudi Arabia aims to restore approximately half of the East-West oil pipeline's capacity within a few days, though estimates vary regarding the time required to fully reopen the line and return crude oil flows to normal.
The key question is whether physical flows will return to normal and how long that will take. If we see a sustained improvement in traffic through the Strait of Hormuz, some of the geopolitical risk premium could recede further.
The US and Iran have not held any peace talks since the collapse of the interim agreement reached in June.
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