Oil price hits seven-year high after Abu Dhabi attack

Musaffah industrial district in Abu Dhabi — The drone attack hit a fuel depot in Abu Dhabi’s Mussafah district

(Image credit: © AFP via Getty Images)

Oil prices have hit a seven-year high amid fresh tensions in the Middle East. Houthi rebels in Yemen claimed responsibility for a drone attack on an oil storage site in Abu Dhabi that killed three people on Monday. Brent crude topped $88 a barrel on Tuesday and has risen 13% so far this year.

“The attack is another reminder of the highly complex missile and drone threat faced by the UAE and the region’s other main oil producers,” says Torbjorn Soltvedt of risk intelligence firm Verisk Maplecroft. “Over the coming weeks, we expect oil’s Middle East risk premium to come more sharply into focus.” Analysts at Goldman Sachs are now predicting that Brent crude will hit $100 a barrel in the third quarter of this year, says Matt Egan for CNN.

The bank forecasts that “oil inventories in advanced economies will sink to their lowest level since 2000” this summer. Previous price spikes have subsided after US shale producers ramped up production. However, while US shale reserves are “large and elastic”, reduced investor willingness to fund fossil fuels means it could take higher prices to bring shale supplies into play this time.

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The US is pressing Saudi Arabia and its allies in the Opec+ cartel, which accounts for around half of global oil output, to raise production, says Stanley Reed in The New York Times. The group slashed output by ten million barrels a day at the beginning of the pandemic and is only slowly restoring production.

Libya, Angola and Nigeria are undershooting their output targets because of “political turmoil, outmoded regulatory regimes” and creaking infrastructure. Saudi Arabia, which accounts for about 10% of the global market, could produce more, but Riyadh is so far ignoring Washington’s pleas for help for fear of “busting up the arrangement with other producers”.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.