Whoever Thought That Yemen Was So Important To Oil Prices?

Crude oil returned to its down trend giving up 81 cents in the Asian session to trade at 48.07 after soaring on supply disruption sparked last week with violence in Yemen. The situation in Yemen remains tenses as the Gulf countries continue to mount military action to drive back the rebels. Brent oil also followed the decline but not as significantly giving up 17 cents to reach 56.01. Speculators took advantage of the geopolitical stress to bump and dump energy products as the global over supply would satisfy any temporary supply problems. The country of Yemen has been embroiled in fighting for months and the situation is quickly reaching a tipping point. Geographically positioned at an important juncture in the Arab world, Yemen is home to several warring factions, all with different goals.

Meanwhile share prices sold off sharply as fears of political risk in the Gulf, together with Federal Reserve officials’ renewed insistence that they are gearing up for a rate rise and the continuing problems with Greece’s finances, sent investors scurrying for safe-haven assets. Growing expectations of tighter US monetary policy have trimmed investors’ optimism about the outlook for the world’s largest economy in recent days, and James Bullard, of the St Louis Federal Reserve, became the latest policymaker to reiterate the argument that interest rates will soon need to rise.

Rock bottom oil prices have helped to drive down inflation in oil-importing countries in recent months — including the UK, where the latest reading on the consumer price index was zero. A renewed rise in oil prices will raise questions about the prospects for company profits.

In the US data revealed that the number of active oil and natural-gas drilling rigs fell for a 16th week in a row, and that the declines in the rig counts have slowed.  On Friday, Baker Hughes reported that the number of U.S. active oil and natural gas rigs as of March 27 fell to 1,048, a drop of 21 rigs from a week earlier. The count was down 56 in the prior week.

The crude complex unwound some of Thursday’s “geopolitically-sponsored gains, as fears of contagion spreading in the Middle East calm,” said Matt Smith, a commodity analyst at Schneider Electric.

Nuclear talks continued between Iran and leading Western powers, with the next deadline on Tuesday,. Market participants have worried that an agreement on Iran’s nuclear program would ease oil sanctions on the country and add to global crude supplies.

Natural gas has been the big loser in the energy markets with prices falling an additional 28 pips this morning to 2.630 as traders look for a mid-season bottom after EIA data last week showed an early climb in stocks. The US is just ending its winter season where heating days fell below expectations and traders are hoping for an early summer with hotter temperatures that forecast to help push up prices.