Saudi Arabia has announced the end of its three-week operation in key oil producing region Yemen against Iranian backed Shiite Houthi militia, leading the oil prices to decline Tuesday. However, eyes are now on market reactions.
Yemen isn’t a significant oil producing country but its geographical location plays an important role in trade of oil. Being situated on the Bab el Mandeb, fourth largest shipping chokepoint in the world, and being a close neighbouring ally of Saudi Arabia effects the oil trade significantly.
“The market’s gone up quite a bit lately and was due for a correction, so the Saudi announcement was a step in the right direction in the sense that it diffuses some of the tensions in the Middle East,” said senior vice president of energy futures at Jefferies in New York.
Oversupply of oil and weak demand have been additional factors affecting oil prices.
US crude oil inventories are forecasted to have increased by 2.4 barrels last week, reaching their highest level since 2011.
Earlier this month, Brent crude hit a 2015 high of $65 a barrel, however, this costs began to stabilize Tuesday, costing $63 a barrel.
Prices are expected to drop further by a small rate in the second quarter, however, the rate isn’t expected to go below this year’s lowest in January.
Additionally, high Organization of the Petroleum Exporting Countries (OPEC) oil production continues to keep markets oversupplied.
The three-week Saudi air strikes on Yemeni militia have come to an end, however, pressure on oil prices continue affecting oil trade.
Geopolitical events in the Middle East, ongoing oil production in Russia and possibility of Iranian oil supply entering the markets could be possible factors affecting the trade in the upcoming months.