The outcome of the military operation against Yemen’s Houthis could be one of the key factors for the oil market in the week of October 5–9, according to Freedom Broker senior analyst Sergey Pigarev. In his view, a defeat of the Houthis would reduce the threat of disruptions to exports via the Red Sea and could lead to lower oil quotations. Such a scenario could also weaken Iran’s position in negotiations with the United States.
Why the operation in Yemen matters for the oil market
Yemen’s government, with support from Saudi Arabia, announced the start of a large-scale operation against the Houthis. In September, they seized the port of Mocha and islands in the Bab el-Mandeb Strait, heightening the threat to oil shipments through the Red Sea.
The Bab el-Mandeb Strait connects the Red Sea with the Gulf of Aden. The security of this route is important for supplies of oil and petroleum products. If the operation reduces the threat of attacks on vessels, the market may trim the risk premium in oil prices tied to the possibility of disruptions.
At the same time, the analyst views a decline in quotations as a possible result of a successful operation. While risks to supply remain, it is premature to speak of a sustained drop in oil prices.
WTI oil fell 1.4% over the week
Last week, U.S. WTI fell 1.4% to $91.1 per barrel (data from the report; I didn’t find it on the website). According to Freedom’s report, pressure on quotations came from a recovery in oil exports from the Middle East and the G7 countries’ decision to release strategic reserves of oil and diesel fuel.
At the same time, opposing factors persisted: attacks on vessels in the area of the Strait of Hormuz and the threat of new supply disruptions. Seven OPEC+ countries left November quotas unchanged—at September levels.
A drawdown in U.S. fuel inventories supports prices
U.S. statistics, in Freedom’s assessment, were positive for oil quotations. Combined inventories of crude and petroleum products fell by 7.8 million barrels over the week.
At the same time, commercial crude inventories rose by 0.9 million barrels to 427.3 million. Product inventories declined by 8 million barrels, while crude runs fell by 600,000 barrels per day to 16.3 million.
Thus, declining fuel inventories are supporting the market, but price direction in the coming days will largely depend on the security of Middle Eastern export routes. Oil_&_Gas_Statistics_(Oil_&_Rig…
Houthi attacks have previously led to higher oil quotations
Earlier, Freedom Broker reported an increase in oil prices of about 3% amid a Houthi missile strike on Saudi Arabia and concerns about supplies. During that session, prices retreated from their highs after reports that the United States and Iran were discussing restoring traffic through the Strait of Hormuz.
Another source of tension was the Houthis’ seizure of the port of Mocha. WTI then rose by almost 6.7% to $102.48 per barrel. These events show how sensitive quotations are to changes in shipping risks in the region.
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