Oil falls below $100 a barrel but heads for weekly gains

Oil futures fell more than 3% on Friday but remain on track to post significant weekly gains due to concerns that supply flows through the Red Sea could also be disrupted and escalating tensions in the Iran war.

By 0946 GMT, Brent crude futures had dropped $4, or 3.96%, to $96.70 a barrel, after surpassing $100 a barrel at Thursday’s settlement for the first time since May, following a 7% rise in the previous session. This came after Iran-aligned Houthis announced they had targeted two Saudi oil tankers in the Red Sea. The crude is on course to record a weekly increase of 9.7%.

John Evans, an analyst at PVM Oil Associates, said, “Major oil production centers and supply routes are surrounded by war... short-term expectations are for prices to rise.”

Iran has urged its allies in Yemen to close the Bab el-Mandeb strait if the United States continues attacking Iran’s power infrastructure. The Bab el-Mandeb strait connects the Red Sea to the Indian Ocean and is the second most important shipping lane for oil cargoes after the Strait of Hormuz.

The Houthis announced on Monday a naval blockade against Saudi Arabia, which has rerouted its oil through a pipeline to avoid the Strait of Hormuz, which Iran has threatened to close.

Initial vessel-tracking data from Kpler showed that only three ships crossed the Strait of Hormuz each day for the past three days.

Kpler data indicated that 32 ships crossed the Bab el-Mandeb strait on Thursday, up from 26 the previous day, with two ships having crossed so far on Friday.

Giovanni Staunovo, an analyst at UBS, said, “In navigable sea lanes, ships are still moving... so it does not represent a complete blockade as some had feared.”

Analysts at JPMorgan wrote in a note that every additional month of oil supply disruption adds between $7 and $8 to the Brent barrel price, which could push the monthly average to around $114 if it persists for three months.

Russia said on Friday that its forces targeted three Ukrainian ports overnight in strikes that hit infrastructure, including loading and unloading facilities and fuel reserves supporting the Ukrainian military.

Kazakhstan’s Ministry of Energy said on Thursday that oil companies had temporarily cut production after suspected Ukrainian attacks closed the country’s main export terminal on the Black Sea.