Oil prices fall as United States inventories rise, but Middle East tensions support

Thursday, 16 May, 2019

Following a reported drone attack on two pumping stations in Saudi Arabia, oil prices jumped by as much as 1.4 percent in the United States.

Houthi-run Masirah TV earlier said the group had launched drone attacks on "vital" Saudi installations in response to "continued aggression and blockade" on Yemen.

Saudi Aramco, the government-controlled oil company, said that as a precaution, it temporarily shut down the pipeline and contained a fire, which caused minor damage to one pumping station.

The image from San Francisco-based Planet Labs Inc. that the AP examined on Wednesday shows Saudi Aramco's Pumping Station No. 8 outside of the town of al-Duadmi.

There were no casualties or oil spillages as a result of the attack but the ships suffered "significant damage", Saudi Energy Minister Khalid al-Falih said on Monday.

"Given that almost one-third of global oil production and almost all of global spare capacity are in the Middle East, the oil market is very sensitive to any attacks on oil infrastructure in this region", Swiss bank UBS said, adding it expected Brent prices to rise toward $75 in coming weeks.

"We are capable of executing unique operations on a bigger and wider scale in the hearts of the enemy countries", they said. A Saudi-led military coalition has been fighting the Houthis in Yemen for four years.

Fujairah's port is about 140km south of the Strait of Hormuz, the narrow mouth of the Gulf through which a third of all oil at sea is traded.

Iran has repeatedly threatened to close the strait in case of a military confrontation with the United States.

A USA official had said on Monday that an American military team's initial assessment is that Iranian or Iranian-backed proxies used explosives on Sunday to blow large holes in four ships anchored off the coast of the UAE.

Saudi and American US officials have long anxious about the Strait of Hormuz becoming a battleground should tensions with Iran break out into open conflict. "And if we did that, we'd send a hell of a lot more troops than that", Trump told reporters.

But Iranian President Hassan Rouhani was forthright in his response - suggesting the country was "too great to be intimidated by anyone".

At the same time, al-Falih did not specify who could have been behind the attack.

On Monday, a U.S. official said that Iran was a leading candidate for the tanker sabotage, but the U.S. did not have conclusive proof. "It is easy to throw accusations but it is a hard situation, there are serious issues and among them is Iranian behaviour", Minister of State for Foreign Affairs Anwar Gargash said, expressing concern about Iran's missiles and regional policy.

Al-Falih said the drone attacks reaffirm the need of the global community to confront the activities of groups like the Houthis, whom he accused of being backed by Iran, Saudi Arabia's regional rival.

Thome Ship Management, a Norwegian firm which manages the ship, said in a statement it had been "struck by an unknown object on the waterline".

The foreign ministry of the United Arab Emirates also condemned the attack as "new proof of the Houthis' hostile and terrorist tendencies".

The Saudi-flagged oil tanker Amjad off the coast of Fujairah, United Arab Emirates, Monday, May 13, 2019. He repeated that Tehran would not negotiate with Washington over Iran's 2015 nuclear deal with major powers.