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U.S. crude oil futures dropped by more than 2% on Monday, with traders balancing the possibility of additional Houthi attacks on Saudi Arabia against worries that steep prices could dent demand.
West Texas Intermediate futures lost 2.19% and changed hands at $101 per barrel. Brent crude futures gave up 1.89%, leaving them at $114.51. The pullback followed a rally on Friday, when prices settled close to $3 higher after Houthi attacks on Saudi Arabia. Over the course of last week, Brent gained 6% while WTI rose 2.3%.
The Houthis claimed responsibility for Saturday strikes on the principal airport in Riyadh and on Saudi oil installations. Saudi Arabia stated Sunday that it had shot down further missiles and drones. The kingdom brought part of the airport's operations back online Sunday even though earlier attacks had left it damaged, according to CNBC. The Houthis threatened more strikes.
Hopes of easing tensions between the U.S. and Iran also weighed on prices. Qatari mediators traveled to Tehran on Sunday to help calm tensions across the region, working in concert with the U.S., according to Arab News.
“Concerns over renewed military hostilities in the Middle East, which drove much of last week’s crude rally, have eased this morning, but the reprieve may prove temporary,” said Vandana Hari, founder of Vanda Insights, according to Arab News.
Michael Alfaro, chief investment officer at Gallo Partners, told CNBC that geopolitical uncertainty has inflated oil prices by about $20 per barrel. He said a serious hit to Saudi Arabia's East-West pipeline, or to additional refineries, could push prices up, though any further rise might eat into consumption.
"What we would likely see if oil pushed above 120, 130, 140 dollars a barrel for Brent, that is, you're going to see more demand destruction," Alfaro said, according to CNBC. He added that harm to refining capacity could grow into a structural problem that lingers through 2027 and later years.
Saudi Arabia shut down its East-West Pipeline after drone attacks from Iraq in September. The pipeline can move up to 7 million barrels per day and had served as an export route that bypasses the Strait of Hormuz. Brent climbed above $108 a barrel at the time as traders worried about when the pipeline would reopen.
Domestically, the Energy Department on Friday approved the release of as many as 400,000 barrels from the Strategic Petroleum Reserve, aimed at easing a supply disruption at a Louisiana refinery, according to CNBC.
Energy ministers from Saudi Arabia and Singapore announced on Monday that state-owned Saudi Aramco will begin holding crude in Singapore storage during the latter half of 2027.