KEY POINTS
- Brent crude fell 1.22 per cent to $108.52 a barrel on Monday after reaching its highest level since May 19 on Friday, according to Reuters.
- US West Texas Intermediate crude declined 0.13 per cent to $101.28 a barrel.
- Attacks on commercial vessels in the Strait of Hormuz reduced average Gulf crude flows to about 8.5 million barrels per day last week, from more than 20 million barrels per day the previous week, according to Kpler data cited by Reuters.
- US President Donald Trump signed an executive order waiving some sanctions and tariffs related to Russian exports.
- Analysts warned that continued shipping disruptions could limit the effect of measures intended to contain oil prices.
MAIN STORY
Oil prices declined on Monday as investors took profits following recent multi-month highs, while concerns about supply disruptions in the Middle East and the war in Ukraine continued to influence the market, Reuters reported.
Brent crude futures fell by $1.34, or 1.22 per cent, to $108.52 a barrel by 10:02 GMT. The benchmark had settled at its highest level since May 19 on Friday.
US West Texas Intermediate crude was down 13 cents, or 0.13 per cent, at $101.28 a barrel after closing the previous week at its highest level since September 17.
Despite the decline, supply concerns continued to support prices, particularly following attacks on commercial vessels crossing the Strait of Hormuz, a critical route for international oil shipments.
Giovanni Staunovo, an analyst at UBS, told Reuters that continued vessel attacks and oil flows remaining below pre-conflict levels were providing support to the market.
Iran’s Islamic Revolutionary Guard Corps said, according to Iranian media, that an oil tanker caught fire and exploded after striking a naval mine in the southern part of the Strait of Hormuz on Sunday.
The attacks have coincided with a sharp reduction in oil shipments from the Gulf. Analytics firm Kpler said in a note cited by Reuters that the seven-day average of Gulf crude flows fell to approximately 8.5 million barrels per day last week, from more than 20 million barrels per day the previous week. Kpler also reported at least 10 confirmed incidents involving commercial vessels during the week.
Bjarne Schieldrop, an analyst at SEB, told Reuters that the recent increase in export volumes through the Strait of Hormuz might not be sustained, warning that Iran could intensify attacks ahead of the November 3 US midterm elections.
Regional tensions also remained elevated after Egypt said it was prepared to support Saudi Arabia in defending its security and stability against Yemen’s Iran-allied Houthis.
Meanwhile, US President Donald Trump signed an executive order on Friday waiving some sanctions and tariffs related to Russian exports. The move followed an agreement with Russian President Vladimir Putin concerning diesel exports to the United States and other countries.
According to the figures reported by Reuters, the planned exports would begin at approximately 2.3 million barrels this month before increasing to about 7.6 million barrels monthly.
US Secretary of State Marco Rubio said Trump would take up to 60 days to assess the impact of sanctions and tariffs on the global economy.
However, Priyanka Sachdeva, head of market insight at Phillip Nova, told Reuters that the move would do little to resolve physical supply disruptions in the Strait of Hormuz while attacks on oil tankers continued.
THE ISSUES
Monday’s decline reflects the difference between short-term price movements and the underlying supply risks affecting the oil market.
Investors taking profits after prices reach multi-month highs can push crude lower without any significant improvement in supply availability. In this case, the reported reduction in Gulf oil flows and continuing attacks on commercial vessels remain important risks for global energy markets.
The Strait of Hormuz is central to the current supply concerns because disruption to shipments through the route can restrict the movement of crude and petroleum products to international buyers. If attacks continue to limit tanker movements, the resulting supply constraints could place further upward pressure on prices.
The proposed increase in Russian diesel exports introduces another variable. Additional supplies could help ease pressure in some fuel markets, but diesel exports are not equivalent to a direct increase in crude oil supply. The effect on overall oil prices will depend on the volumes delivered, market demand and the extent of disruptions elsewhere.
For Nigeria, sustained high international oil prices could support crude export earnings, depending on production volumes and export performance. However, higher global prices can also increase domestic fuel costs and transportation expenses, adding pressure to businesses and households. The balance of these effects depends on domestic pricing arrangements, supply conditions and the naira exchange rate.
WHAT’S BEING SAID
“Ongoing strikes on vessels crossing the Strait of Hormuz and flows remaining below pre-conflict levels continue to provide support.” – Giovanni Staunovo, Analyst, UBS
“Trump’s move looks like another desperate attempt to keep oil prices in check ahead of the US midterm elections.” – Priyanka Sachdeva, Head of Market Insight, Phillip Nova
WHAT’S NEXT
Oil traders will continue to monitor vessel movements through the Strait of Hormuz, Gulf export volumes and developments involving Iran, Saudi Arabia and other regional actors.
The market will also assess whether the proposed Russian diesel exports materialise at the reported volumes and whether the US administration’s review of sanctions and tariffs leads to further policy changes.
A sustained recovery in Gulf shipments could ease supply concerns, while further attacks on commercial vessels could reverse Monday’s price decline.
BOTTOM LINE
Oil prices retreated on Monday as investors took profits after last week’s gains, but the decline does not necessarily signal an improvement in global supply conditions. Continued attacks on vessels and reduced crude flows through the Gulf remain significant risks, while proposed Russian diesel exports offer a potential but uncertain source of additional fuel supply.
Source: Reuters
