Crude Prices Retreat on Hopes Middle East Energy Exports to Recover

Crude prices retreated on Friday as hopes grew that diplomacy could resume Middle Eastern energy exports and restore flows from the region. The drop in prices came after China privately approached Iran to help curb Houthi militants in Yemen, who have been attacking energy facilities in Saudi Arabia and advancing toward the Bab-el-Mandeb strait.

Saudi Arabia announced it aims to restore about half of the East-West pipeline's capacity within days after a recent shutdown due to drone strikes. US Energy Secretary told that 18 million barrels of crude oil and refined products passed through the Strait of Hormuz on Tuesday, easing global supply concerns.

The East-West pipeline, which carries 7 million barrels of crude per day, was closed last week due to Houthi rebel attacks. Saudi Aramco delayed oil deliveries to European customers because of the pipeline closure. Yemen's Houthi rebels have targeted Saudi energy facilities, leading to reduced production and concerns over tighter oil supplies from the Middle East. The loss of about 2 million barrels of crude exports from the Middle East and another 2 million barrels from Russia contributed to the bearish sentiment.

Israeli Defense Minister Katz stated that an Iranian attack on Israel could free Israel from existing restrictions in response to the regime in Iran. However, Israel has struck Iran-backed targets in Lebanon and Gaza, while Houthi rebels have attacked ships in the Red Sea. The International Energy Agency warned that high oil prices and restricted supply would cause the largest drop in global oil demand since the COVID-19 pandemic.

OPEC approved an increase of 188,000 barrels per day in crude production for September, but the planned production hike may be difficult to implement due to ongoing US-Iran military attacks.