Oil climbs as Gulf of Oman incident raises geopolitical risk
TheNationalUAE -

Brent reversed its recent losses and gained $2 as another tanker incident in the Middle East, pushed prices higher.

Brent futures were trading at $62.29 per barrel at 10:58 UAE time.

An "unspecified incident” had taken place in the Gulf of Oman, according to the United Kingdom Maritime Trade Operations, which is run by the British navy. The US Fifth Fleet, which is stationed in Manama, Bahrain, said two oil tankers were damaged in the incident, Bloomberg reported. The US Fifth Fleet did not immediately respond to a comment request from The National.

According to reports in Iranian media, two tankers had come under attack following an explosion off the coast of Oman. Sources cited by Reuters identified the tankers as Marshal Islands-flagged Front Altair and the Panama-flagged Kokuka Courageous. Both vessels had been evacuated, according to the report.

One of the vessels had been on course after having loaded crude from Abu Dhabi.

The incident is the latest affecting tankers and oil infrastructure in Middle East over the last couple of months.

In May, two tankers belonging to Saudi Aramco suffered significant damage as a result of sabotage attacks. One of the vessels had been on its way to the eastern Saudi port of Ras Tanura to be loaded with crude destined for customers in the US.

A day after the incident, an East-West pipeline in Saudi Arabia came under attack by armed drones forcing its temporary shut down.

The incidents had pushed Brent, the benchmark for light, sweet crude above $70 per barrel In May, as market observers said a higher geopolitical risk premium would be increasingly factored into prices.

Oil had been on the wane since falling to its lowest last week since January, declining 16 per cent in three weeks as the trade war standoff between the US and China weighed on the markets.

Analysts such as Vandana Hari, founder and chief executive of Singapore-based Vandana Insights observed that bearishness would likely continue to be seen in the markets, unless the incidents escalate into full scale war.

"Today’s attacks, especially coming just about a month after similar incidents involving oil tankers in the same region, are bound to send a jolt through the market. But unless they turn out to be the precursor of a larger warfare in the Middle East – which is highly doubtful – they will soon be forgotten,” she said.

The more dominant influence on crude prices remains bearish as long as the US and China are locked in their trade war impasse, she added.

Opec+ as the alliance headed by Saudi Arabia and Russia have highlighted global recession and the trade stand-off as the biggest concerns for the oil markets. The alliance is likely to rollover production cuts into the second half of the year, as concerns over an inventory overhang still dominate discussion.

Giovanni Staunovo, commodity analyst at UBS said that markets would remain wary of pricing in a high geopolitical risk premium if there is no actual disruption to oil supply.

"Market reacts nervously, as the Middle East exports a lot of oil and a disruption of flows trough the Strait of Hormuz cannot be offset by SPR [strategic petroleum reserves] releases,” he said.

“That said, to see the market keeping an elevated risk premium in oil prices, such attacks need to result in oil disruptions. Otherwise similar to last time the risk premium will be priced out again,” he added.

Updated: June 13, 2019 02:13 PM

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