The Commodities Feed: Attacks on Saudi Arabia fan oil supply worries
Lead — The escalating attacks on Saudi oil infrastructure underscore significant geopolitical tensions that continue to support elevated oil prices, with Brent trading back above $110 per barrel. This backdrop is expected to bolster risk aversion in broader markets, particularly influencing currencies tied to oil exports. Per the full note, indications from the U.S. State Department and limited improvement in Middle Eastern diplomacy contribute to a heightened risk perception surrounding global oil supply dynamics. The market will remain volatile due to the substantial risk premium embedded in oil prices as investors seek assurance of uninterrupted flows despite robust production numbers from Kuwait.
What the desk is arguing
The desk posits that ongoing geopolitical tensions, especially related to attacks on Saudi oil infrastructure, are likely to sustain elevated oil prices and influence currency markets negatively. Trading has focused primarily on risks to oil supply, rather than on the resilience of existing production, as noted by Warren Patterson and Ewa Manthey from ING. In light of the drone strikes on Saudi facilities, the continued high oil prices indicate a strong risk premium as market participants assess the potential for supply disruptions.
Kuwait is reportedly maintaining its crude oil exports at pre-war levels, producing over 2 million barrels per day. However, the risks remain significant as geopolitical tensions escalate, particularly in light of U.S. government personnel being instructed to evacuate non-emergency roles in Saudi Arabia due to security fears. Given that recent U.S. Energy Information Administration data indicated a 3.06 million barrel draw in crude oil inventories, traders should remain vigilant on the evolving dynamics of both supply and demand in this context.
Where it sits in our coverage
Our consensus target for oil-linked currencies currently rests at 1.075, situated within a range of 1.04 to 1.12. Specifically, jpmorgan has a target of 1.10 for March 2026, while bofa presents a contrasting outlook with a target of 1.04 for the same horizon. This elevated target captures the potential for sustained price volatility amid geopolitical uncertainties, which aligns with jpmorgan's more bullish sentiment and diverges from bofa's more cautious stance.
How other firms see it
Firms such as barclays and goldman sachs remain aligned in their bullish outlook on oil prices, anticipating further upside should geopolitical tensions escalate. Conversely, deutsche bank expresses a more bearish outlook, suggesting that prices may stabilize or decline if production yields remain consistent across the Persian Gulf region.
The implications of these dynamics could particularly influence the USD/CAD exchange rate, as movements in oil prices tend to correlate inversely with the Canadian Dollar. Additionally, keep an eye on potential reactions from the Federal Reserve regarding interest rate policy, as this could impact broader currency flows in response to oil price shifts.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Geopolitical tensions continue to support elevated oil prices above $110/bbl.
- 02Kuwait's oil production remains robust, minimizing immediate supply concerns.
- 03Significant risk premiums in oil prices suggest market caution.
- 04Upcoming geopolitical developments will be critical in shaping market sentiment.
Market implications
Traders should keep an eye on oil price levels, particularly the $110 mark in Brent, as it may trigger heightened volatility in commodity-linked currencies. Positioning ahead of potential geopolitical escalations is essential as these developments could shift market sentiment rapidly.
Risks to this view
A significant easing of geopolitical tensions in the Middle East, coupled with a marked increase in oil production from OPEC nations, could reverse the current bullish sentiment on oil prices and consequently dampen the risk premium in the FX markets.
Articles The Commodities Feed: Attacks on Saudi Arabia fan oil supply worries Published 03:48 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices remain well-supported after fresh attacks on Saudi Arabia, with traders focused on risks to the outlook rather than the resilience of Persian Gulf supplies Warren Patterson and Ewa Manthey Source: Shutterstock Energy - Kuwait pumping more than 2m b/d Oil prices remain well bid, with ICE Brent back above $110/bbl this morning following additional deadly attacks on Saudi Arabia. Drones struck the Shaybah oilfield and Dammam's international airport. An oil processing plant was the target of the attack.
Saudi Arabia’s energy ministry said production hasn’t been impacted. The escalation prompted the US State Department to order non-emergency US government personnel to leave the country. This will concern markets, suggesting little improvement in Middle East tensions, and possibly further escalation.
Despite the volatile environment, oil flows from the Persian Gulf are holding up. According to the CEO of Kuwait Petroleum Corp, Kuwait is exporting as much crude oil as before the war and producing more than 2m b/d. However, he admitted that the shipping of refined products is more of an issue.
While oil flows have remained elevated, President Trump has expressed concern that oil prices remain elevated due to supply risks. This leaves plenty of uncertainty over the sustainability of flows. The sizeable risk premium currently embedded in prices is unlikely to fade until clear signs of de-escalation emerge and reassure investors that regional supply will remain uninterrupted.
EIA inventory data shows US crude oil inventories fell by 3.06m barrels over the last week . There was an additional 300k-barrel fall in Strategic Petroleum Reserves. The data still reflects the impact of hurricane activity in the US Gulf of Mexico, with US oil production estimated to have fallen 410k b/d week-on-week.
Crude oil imports fell by 291k b/d, while exports fell by 1.13m b/d. For refined products, implied gasoline demand rose 574k b/d WoW. This contributed to the 2.95m barrel decline in gasoline inventories.
However, the diesel market saw some relief, with distillate stocks rising by 1.68m barrels. Total distillate stocks stood at just over 104m barrels, a seasonal low dating back 30 years. Metals — Indonesia nickel output cuts LME nickel prices gained significantly yesterday, settling 3.65% higher on coordinated production cuts in Indonesia.
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