Freedom: threats to supplies from Saudi Arabia keep Brent above $114

Risks to Saudi Arabia’s energy infrastructure are supporting oil prices despite expectations of increased supply, says Freedom Broker lead analyst Natalia Milchakova. In her view, the market is simultaneously pricing in the threat of supply disruptions and a possible tightening of U.S. monetary policy.

In trading on October 23, Brent rose above $114 per barrel for the first time since May, Oninvest reports. As of the time of Milchakova’s comments, the price was approaching $115, and the day’s gain exceeded 1.5%.

Attacks on infrastructure heighten supply concerns

Milchakova links the rise in oil prices primarily to a new series of attacks by Yemen’s Houthis on Saudi Arabian facilities, including energy infrastructure.

In her assessment, the threat of disruptions still outweighs expectations of increased supply, including from Russia. For market participants, it is not only potential additional volumes of oil that matter, but also the reliability of their delivery to consumers.

New threats to infrastructure increase uncertainty around exports from the region. Under such conditions, prices may retain an additional premium for the risk of supply disruptions.

Expectations around the Fed decision create an offsetting factor

Milchakova also cites expectations of a possible Federal Reserve rate hike next week as another source of uncertainty. This refers to market expectations, not a decision already made by the regulator.

A higher rate could increase the appeal of dollar-denominated assets and intensify competition for capital with equities and commodity futures, the analyst notes. As a result, the oil market remains sensitive at the same time to geopolitical news and the outlook for U.S. monetary policy.

Brent’s rise extended the prior session’s move

Earlier, Freedom Broker reported that oil had jumped amid escalating tensions in the Middle East. At the close of trading on October 22, December Brent futures rose 4.11% to $113.28 per barrel, while WTI gained 3.02% to $100.08. The publication noted reports of Houthi attacks on Saudi facilities.

Back in early October, Milchakova warned that the threat of attacks on oil infrastructure preserves conditions for a renewed rise in Brent. At that time, the decline in prices was linked to hopes for improved shipping security through the Red Sea.

In the analyst’s current assessment, the further direction of prices will depend on how far actual supplies offset the ongoing infrastructure risks, as well as on the Fed’s decision and signals.

Not an individual investment recommendation.