Two Middle East Flashpoints Drive Oil Above $100 as Wall Street Sees $150 Risk

U.S.-Iran, Saudi-Houthi Clashes

Wall Street Says Oil Could Reach $150 in the Fourth Quarter

International oil prices surged to the brink of $100 a barrel on Sept. 8. The move was driven by mounting concern over supply disruptions after Saudi Arabian energy facilities were attacked by the Iran-aligned Houthi rebels.

Brent crude for November settlement rose 92 cents, or 0.95%, to settle at $97.92 a barrel on London's ICE Futures Europe exchange. On Sept. 9, it traded above $100 intraday for the first time since July 24. West Texas Intermediate for October delivery gained $1.55, or 1.69%, to settle at $93.03 a barrel on the New York Mercantile Exchange.

If the conflict between Saudi Arabia and the Houthis intensifies, the risk of a shutdown of the Bab el-Mandeb Strait will increase. The waterway handles about 5% of global oil shipments. Global investment banks have raised their fourth-quarter oil price forecasts to as high as $150 a barrel. Kim Fustier, HSBC's lead energy analyst, said fears that crude supply shortages could last longer than expected are now being reflected more fully in prices.

Oil Could Reach $120 if Energy Facilities Are Hit Again

Middle East Escalation Pushes Prices Above $100 Intraday, Though North American Supply May Limit Gains

The Houthi rebels in Yemen, widely believed to be backed by Iran, attacked four cities in southern Saudi Arabia -- Abha, Khamis Mushait, Jazan and Najran -- as well as facilities operated by state oil company Aramco on Sept. 8, using drones and missiles. Parts of the energy facilities caught fire, forcing operations to halt, and 73 people were injured, according to the report.

Since the war with Iran began, Saudi Arabia has moved crude across the Arabian Peninsula by pipeline to its western Red Sea coast for export. After the Houthis struck western energy facilities, concern grew that even the route bypassing the Strait of Hormuz might no longer be safe.

The situation around the Strait of Hormuz has also worsened. U.S. forces attacked a tanker linked to Iran's Islamic Revolutionary Guard Corps on Sept. 8, and Iran responded with retaliatory military operations targeting U.S. destroyers and bases. Iran also designated a maritime blockade zone in the Strait of Hormuz and warned of attacks on energy facilities and oil tankers.

That has added weight to the view that average oil prices in the fourth quarter will rise well above $100 a barrel. Major investment banks have recently raised their Brent crude forecasts. Bank of America said in a report released on Sept. 8 that Brent could trade at $95 to $120 a barrel through year-end if lower-level clashes that constrain oil supply continue.

Goldman Sachs raised its year-end Brent forecast by $5 from its previous $80 estimate, citing the possibility that shipping disruptions could last into next year. The bank said Brent could reach $120 if attacks by Iran and the Houthi rebels on vessels intensify. David Fyfe, chief economist at Argus, said current prices show supply conditions are extremely tight.

Some in the market, however, believe oil will not rise to $100 to $120 a barrel. They point to smaller-than-feared declines in crude shipments through the Strait of Hormuz and alternative routes, rising output from non-OPEC producers such as the U.S. and Canada, and a structural decline in China's oil demand.

Hwang Jeong-su, New York correspondent / Kim Dong-hyun, reporter hjs@hankyung.com