Oil prices soar on Saudi, Russian supply fears

LONDON — Oil prices soared on Monday as a weekend attack on Saudi facilities and EU discussions on banning Russian crude raised concerns over global supplies.

Top producer Saudi Arabia warned that Yemeni rebel attacks on the kingdom's oil facilities pose a "direct threat" to global supplies, the comments helping Brent North Sea crude surge 7 per cent to $115.49 per barrel with WTI rising 6 per cent to $110.99.

Wall Street dipped 0.8 per cent mid session as did the tech-heavy NASDAQ and European equities ended slightly in the red — though London had added half a per cent at the close — after Ukraine rejected a Russian ultimatum to surrender its besieged southern city of Mariupol.

"Oil prices are up noticeably as the new week of trading begins," noted Commerzbank analyst Carsten Fritsch even prior to the Saudi comments.

"The reason for the upswing is news that the EU appears to be considering a ban on oil imports from Russia," he added.

"We saw what happened when the US first floated the idea of the EU banning imports alongside it and if this becomes a realistic prospect, we could see oil prices rising much further," said OANDA analyst Craig Erlam.

"The Saudi news could also be contributing to the price rise although the country has ample spare capacity and there have been reassurances that there are sufficient contingency plans in place to ensure contracts are fulfilled. So that remains a much smaller upside risk for prices for now," Erlam added.

EU foreign ministers were meanwhile meeting to discuss imposing additional sanctions against Moscow, with a raft of countries pressing for a ban on Russian energy. Germany, however, is reluctant given its huge reliance on Russian gas.

Kremlin spokesman Dmitry Peskov warned that an oil embargo "is a decision that will hit everyone".

Drone strike 

Also pushing up crude futures was the attack by Yemeni rebels on facilities belonging to oil giant Saudi Aramco.

"As war rages in Ukraine, another protracted conflict is also adding to the nervousness around the oil price after Houthi rebels attacked a refinery in Saudi Arabia," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

"It's officially a temporary outage but still has undermined the effect of Saudi Aramco's pledge to ramp up production in coming years."

Drone and missile strikes by Yemen's Iran-backed Houthi rebels at the weekend caused no reported casualties.

The drone assault on the YASREF refinery in Yanbu Industrial City on the Red Sea "led to a temporary reduction in the refinery's production, which will be compensated for from the inventory", the Saudi energy ministry said.

The Saudi-led military coalition that backs Yemen's government said it intercepted and destroyed ballistic missiles and drones launched towards Jizan and other areas in the kingdom, causing "damage" to several sites.

The Saudi foreign ministry said the kingdom "will not incur any responsibility" for shortages in oil supplies in light of the Huthi attacks but noted a "direct threat to the security of oil supplies in these extremely sensitive circumstances witnessed by the global energy markets".

Saudi Aramco on Sunday reported a 124 per cent surge in annual net profit owing to soaring oil prices that is fuelling inflation worldwide, in turn pushing central banks to raise interest rates that could hinder the economy's growth recovery according to experts.

Traders were cautious as they drank in the latest events affecting markets.

European and Asian stock markets were steadier after recent sharp swings, "not because views on geopolitical or policy/rates risk have improved but because price action shows a market more tolerant of those challenges", said Stephen Innes of SPI Asset Management.