Brent charges towards US$90 per barrel as Middle East unrest stokes supply disruption

KUALA LUMPUR: The Brent crude price continued with its uptrend to close near US$89 (US$1=RM4.19) per barrel amid possible supply disruption following the latest unrest in the Middle East.

Rakuten Trade vice-president of equity research, Thong Pak Leng said it was highly possible for Brent crude to breach the US$90 per barrel level in the near term due to political tensions, especially caused by the recent attack in the United Arab Emirates (UAE) and the Russia-West standoff over Ukraine.

At the time of writing, Brent rose 0.41 per cent to US$87.87 per barrel, while West Texas Intermediate advanced US$67 per cent to US$86 per barrel.

The oil market is heavily influenced by political announcements from the likes of the Organisation of the Petroleum Exporting Countries (OPEC) and the United States (US), the main oil suppliers and key drivers of oil prices.

One of the most obvious causes of political disruption that has influenced the oil market through the years is the Middle East, given the importance of the region for global supplies.

On Monday, a suspected drone attack by Yemeni Houthi rebels in the UAE blew up three fuel tankers, killing three people.

Oil prices hit their highest level in more than seven years on Tuesday, as traders were worried that the attack on the fuel storage facility in the UAE would affect supply.

In retaliation, a Saudi-led coalition attacked the Yemeni capital of Sanaa with airstrikes, with as many as 20 casualties reported.

The attack on the oil-rich state and expectations for a surge in demand resulted in oil prices hitting their highest level since October 2014.

Brent crude rose almost 1.0 per cent to hit US$87.22 a barrel.

Price rises were even steeper in the US, where West Texas Intermediate crude increased by 1.3 per cent to US$84.89 a barrel.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said there was a good chance that crude oil prices might stay elevated given the lack of investment in the industry, which would make the sector vulnerable to a sudden surge in demand.

For instance, he noted that the number of oil rigs that were operational globally as of December 2021 stood at 1,563 units as opposed to 3,570 units at the end of 2014.

"Understandably, the oil majors have been cutting down on capital expenditure in order to shore up their cash position and be mindful of the exploration and production (E&P) spending given the structural shift in crude oil demand given much emphasis towards climate change and environmental, social, and governance (ESG) related investment principles,” Mohd Afzanizam told Bernama.

He noted that no one could really tell whether high crude oil prices would persist at a time when efforts towards green energy production are expected to pick up speed given the net-zero carbon initiative by 2050 in many jurisdictions.

"The transition could push up prices higher and, thereafter, it could subside should green energy become more mainstream and reach the critical mass in respect to production,” added Mohd Afzanizam. - Bernama
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