Oil: Geopolitical supply risks tilt bias higher – OCBC
OCBC strategist Christopher Wong says oil risks have risen again as disruptions to Saudi export infrastructure and renewed concerns around the Strait of Hormuz and Bab el-Mandeb keep supply risks elevated.
OCBC strategist Christopher Wong has warned that geopolitical supply risks have increased once more due to disruptions in Saudi export infrastructure and heightened concerns over the Strait of Hormuz and Bab el-Mandeb. This could potentially impede oil supply, complicate the inflation outlook, and support yields, thereby negatively impacting risk sentiment. A swift restoration of oil flows or indications of de-escalation could, however, dampen the geopolitical premium.
Over the weekend, oil risks surged. Saudi Arabia briefly halted its East-West pipeline following a drone attack, which disrupted a critical alternative export route. Meanwhile, traffic through the Strait of Hormuz continues to be heavily disrupted. Additionally, Bab el-Mandeb, another significant shipping chokepoint, has raised concerns.
These developments suggest that Friday's retreat in Brent, which reached near $110/bbl, may not be sustained. Traders will be closely monitoring whether Saudi pipeline operations resume swiftly and whether attacks on shipping and energy infrastructure expand. A renewed rise in oil prices would complicate the inflation outlook, keep yields supported, and weigh on risk sentiment. Conversely, a rapid restoration of oil flows or signs of de-escalation might cause some of the geopolitical premium to dissipate.
Presently, the risks associated with oil still lean towards the higher side.
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