Oil jumped to a seven-year high early on Tuesday, the day after Iran-aligned Houthis attacked targets in the United Arab Emirates (UAE) with drones, adding to the continued tightness in the oil market to lift prices.
Apart from the numerous signs of tightness in the physical crude market, oil futures reflected on Tuesday the growing risk premium after the attack on the UAE in the most important oil-producing and exporting region in the world.
An attack with drones on Monday, for which the Houthi rebels aligned with Iran later claimed responsibility, killed several people, and blew up fuel tanker trucks near storage facilities owned by the Abu Dhabi National Oil Company (ADNOC).
The United States strongly condemns the attack, U.S. National Security Advisor Jake Sullivan said, adding that “Our commitment to the security of the UAE is unwavering and we stand beside our Emirati partners against all threats to their territory.”
The Houthis claim there will be further attacks.
“This operation is a prelude and there are still a lot of surprises in the pocket of our military forces,” Abdulmalik Al-Ejri, a Houthi leader, told Al-Masirah, as carried by Bloomberg.
Attacks from the Houthis, which have frequently launched drones and missiles from Yemen into Saudi Arabia, are raising the geopolitical premium in oil at a time when the market fundamentals are also bullish.
“This growing geopolitical risk comes at a time when there is already plenty of concern in the market over the potential impact of an escalation in tensions between Russia and Ukraine. These growing risks, combined with worries over OPEC spare capacity, have meant that sentiment in the oil market has remained bullish,” ING strategists Warren Patterson and Wenyu Yao said on Tuesday.