On Monday, U.S. crude oil prices fell by more than 2% as investors weighed the threat of potential further attacks on Saudi Arabia's energy infrastructure against concerns that maintaining high oil prices could ultimately erode demand.
West Texas Intermediate (WTI) crude oil futures in the United States fell 2.19% to $101 per barrel; Brent crude oil futures fell 1.89% to $114.51 per barrel.
Previously, on Friday, oil prices soared significantly as Houthi militants from Yemen launched attacks on Saudi Arabia, reigniting concerns in the market about disruptions to global energy supply.
Throughout the weekend, tensions remained high. Houthi militants claimed that they attacked Saudi Arabia's capital Riyadh's main airport and oil facilities on Saturday. Saudi authorities stated that they intercepted more missiles and drones on Sunday as well.
Despite the damage caused by previous attacks, the Kingdom of Saudi Arabia partially resumed operations at its major airports on Sunday, but the Houthi militants simultaneously threatened to launch further attacks.
Continued hostilities have heightened market concerns about the vulnerability of Saudi Arabia's energy infrastructure, with traders paying increasing attention to the risk of major disruptions to crude oil production, refining, or export facilities.
Gallo Partners Chief Investment Officer Michael Alfaro stated to CNBC that geopolitical uncertainties have caused oil prices to increase by approximately $20 per barrel.
I think the theme we are dealing with now is that uncertainty is incredibly high; if you take into account the risk premium already factored into current oil prices, it is about $20 per barrel.
Michael Alfaro, Gallo Partners Chief Investment OfficerHe added that if Saudi Arabia's East-West Pipeline or more refining infrastructure were severely damaged, oil prices could rise significantly, but further increases could ultimately weaken consumption.
"If Brent oil prices rise above $120, $130, or $140 per barrel, we are likely to see even more demand damage." Alfaro says.
In addition to the direct threat to crude oil supply, damage to refining infrastructure could also pose more lasting challenges to the global energy market.
"The real challenge lies in refining capacity."He said, and warned that these disruptions could evolve into long-term structural problems that may persist until 2027 and beyond.
Meanwhile, according to the statements of the energy ministers of both countries, Saudi Arabia plans to store crude oil in Singapore starting from the second half of 2027, with the aim of enhancing the resilience of its supply chain in Asia.
In the United States, last Friday the Department of Energy authorized the release of up to 400,000 barrels of crude oil from strategic oil reserves in order to address a supply disruption at a refinery in Louisiana.
However, the prospects for U.S. producers to increase supply remain uncertain. Due to fluctuations in oil prices and geopolitical risks, companies are reluctant to commit to large-scale new investments.
Alfaro added that American producers are increasing the number of drilling rigs, but they remain cautious about significantly raising capital expenditures.
"We haven't actually seen a significant increase in capital expenditures to deploy new drilling rigs or bring new production online."He said.
