Oil markets reacted Monday to a naval escalation near Dubai,
highlighting on-going tensions in the Persian Gulf region. Oil
prices Friday surged higher following economic statements from
China, which has experienced economic stagnation but not the hard
fall predicted by some market analysts. The opening of an oil
pipeline in the United Arab Emirates during the weekend may have
taken some steam out of this week's crude oil prices, but military
tensions in the Persian Gulf region trumped any significant physical
market conditions.
Brent crude oil prices
rose
more than 1 percent Monday to $103, with U.S. crude oil settling at
just over $88 per barrel, a value not seen since late May. Barring
some refinery shutdowns in the United States, much of that reaction
was likely in response to incidents in the Persian Gulf. Last week,
the U.S. military sent more military assets to the Persian Gulf and
Monday, a U.S. Navy ship
fired on what turned out to be a non-military vessel in the
region. One person died after the USNS Rappahannock fired its
.50-caliber machine gun at an approaching boat that had apparently
"disregarded warnings" from U.S. military personnel. Though
the U.S. military was quick to defuse the situation, it was enough
to send a recession-wary market into overdrive by late Monday.
U.S. and European sanctions targeting the Iranian energy sector are
barely two weeks old, though markets had more than six months to
prepare. South Korea reported that, by June, its imports of Iranian
crude oil had declined more than 20 percent from the previous year
amid increased sanctions pressure. New Delhi, meanwhile, has
seemingly grown frustrated with finding ways to pay for Iranian
crude and switched its focus over to Azeri markets. Once one
of Iran's largest buyers of crude oil, New Delhi officials
said they might move away from Iranian crude oil completely as
European sanctions in particular make it more difficult to continue
with its business-as-usual model.
A $3.3 billion oil pipeline went into service during the weekend
that bypasses the Strait of Hormuz. Iran, during the weekend,
said its forces maintain the ability to control the key strait
and could prevent "even a single drop of oil" from getting through.
While any reaction to the crisis involving the USS Rappahannock
incident was likely of the knee-jerk variety, analysts were quick to
point out the situation in the region was increasingly "fragile."
Outside of the region, drilling for oil and natural gas in the
North Sea is up more than 60 percent historically, but that did
little to distract from tensions in the Middle East. Expiring
contracts for Brent crude for August were up 1.2 percent during the
early part of the week, with September crude up $1.95 to $103.37 per
barrel.
Source:
Oilprice.com