By Barani Krishnan
Investing.com - Crude prices fell more than 1% Monday, pulling benchmark Brent back from highs above $70 per barrel, after it became apparent that a drone attack on a Saudi oil facility by Iran-sympathizing Yemeni Houthis did not cause the kingdom any loss in production.
It wasn’t the first time that a Saudi oil location had been targeted since the massive September 2019 hit on the Abqaiq complex that impacted the kingdom’s energy production for weeks. But each attack since has been countered with increasing efficiency by the Saudi authorities, providing little justification for crude prices to go spiking the way they typically did.
Monday’s raid on the Ras Tanura oil port on the Persian Gulf was no different.
Brent got to as high as $71.38 per barrel after the raid on the port, breaching $70 the first time since January, before falling back. It settled the session at $68.24, down $1.12, or 1.6% from Friday’s close.
U.S. crude benchmark , the West Texas Intermediate, also settled down 1.6%, or $1.04, at $65.05.
Crude prices spiked after a Houthi military spokesman said on Sunday his side had targeted the oil port and military targets in the Saudi cities of Dammam, Asir and Jazan.
The Saudi-led military coalition engaged in Yemen said in response that it had intercepted 12 Houthi drones, including two ballistic missiles fired towards Jazan. Saudi Aramco (SE:2222), the kingdom’s oil company, later said none of its operations had been affected.
“It’s the usual kind of hype that gets the market all excited, only for people to realize later there’s no justification for the additional dollars they’ve put into Brent,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. “The market’s rightly given back what it should, though it remains overextended even at these levels.”
Ten months of output cuts by the world’s major oil producers have brought oil inventories in the so-called OECD, or developed countries, to “normal” five-year levels, from a glut a year ago caused by the coronavirus pandemic. A host of other factors, including optimism about economic recovery from Covid-19 vaccines, have also brought WTI up from April’s lows of minus $40 per barrel to Friday’s 13-month high of $66.40.
But there’s also a feeling that the rally has seriously overrun its course, with the U.S. crude benchmark up nearly 85% from the end of October.
Even Saudi oil minister Abdulaziz bin Salman expressed doubts last week about the lofty projections being made for oil demand in the near term as he opted against a production hike for the kingdom or its allies in the so-called OPEC.