Oil Prices Surge As Conflict Affecting The Middle Eastern Sea Lanes Creates Bi-Polar Markets

It seems the breather from extortionate fuel prices at the pumps has come to an end, as crude oil prices surge back to $51.32 a barrel across Europe. This comes after Saudi Arabia and its allies launched airstrikes against Houthi rebels, de-stabilizing the middle-eastern sea-lanes.

The market has surged in the last 48 hours, with oil prices increasing by 8 percent despite there still being an oversupply. This has sent a nervous twitch into the market place, triggering a rapid release of stocks from those banking on the barrel price remaining low.

Rising Oil Prices
Oil transit fears sends twitch through futures market. Source: Investing.com

The writing was on the wall earlier this month when the International Energy Agency (IEA) warned that the stability and dropping oil prices may be a facade.

“U.S. stocks may soon test storage capacity limits. That would inevitably lead to renewed price weakness, which in turn could trigger the supply cuts that have so far remained elusive.

“Behind the facade of stability, the re-balancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.”

This oil price surge is in spite of no real threat to the oil supply but reactions from Saudi Arabia, the worlds largest exporter of of crude oil, sent another twitch through the oil giants that export through the important energy routes across Yemen.

“Yemen is a non-issue in terms of actual oil production,” said Ed Cowart, co-manager of energy investments at Eagle Asset Management, according to the Wall Street Journal. “It just … reminds people how fragile the supply lines really are in that part of the world.”

The oil price surges are always sensitive to political problems in a region with a fragmented and unstable geography, the most sensitive area being at the south western tip of the Arabian peninsular. Yemen sits at the heart of this landscape on the gateway the Red Sea with access to the Suez Canal that transports 5 percent of the worlds crude oil according the EIA.

Instability here would leave the The Strait of Hormuz, which separates Arabia from South Asia, exposed if trouble was to flare up in Iran. This route is far more important to the global oil trade, as 15 percent of the world’s oil supply is transported through it.

Higher oil prices would theoretically be welcome for Iran, which has been sharply critical of Saudi Arabia’s decision in November to start a price war to defend its share of the global market, reported of Fortune Magazine.

[Image Credits: warnewsupdates.com Investing.com]

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