Oil prices fall more than $1 as supply threat eases

Oil prices fell more than $1 on Friday, after sharp gains in the previous session, as worries of a disruption to crude supplies due to Saudi Arabia-led air strikes in Yemen eased.

Goldman Sachs said in note that the strikes in Yemen would have little effect on oil supplies as the country was only a small crude exporter and tankers could avoid passing its waters to reach their ports of destination.

Brent crude was at $58.18 a barrel at 0421 GMT, down $1. It fell to $58.17 earlier in the session. U.S. crude was down $1.06 at $50.37 a barrel, after dropping to a low of $50.25 earlier in the day.

Oil jumped around 5 percent on Thursday, the biggest daily gain in a month, as air strikes in Yemen by Saudi Arabia and its Gulf Arab allies sparked fears that escalation of the Middle East battle could disrupt world crude supplies.

The rally had been driven by worries over the possible impact on the Bab el-Mandeb strait, the closure of which could affect 3.8 million barrels a day of crude and product flows.

Yemen is a small producer, with an output of around 145,000 barrels per day in 2014.

“Now the market is questioning how sustainable the (impact of the) geopolitical event is on oil prices,” said Jonathan Barratt, chief investment officer at Sydney’s Ayers Alliance.

If the fighting becomes a regional conflict involving Islamic militants, then prices could climb, but a blockade of the Bab el-Mandeb strait - a chokepoint for shipping between the Red Sea and Gulf of Aden - seems unlikely, he said.

In case of a closure of the strait, tankers could be diverted to travel a longer route around Africa instead of passing Yemen, analysts said.

Analysts also said that the less than 40 kilometers narrow strait between Yemen and Djibouti was heavily militarized by the West, with the United States and France both operating bases in Djibouti and NATO and other allies having a fleet presence in the Gulf of Aden to combat piracy.

A bigger impact from the Middle East on oil prices might come from a potential nuclear deal with Iran, which could result in a loosening of western sanctions against Tehran and rising exports of its oil reserves, ANZ analysts said on Friday.

“With potentially 30 million barrels stored offshore, it (Iran) could quickly flood an already saturated oil market,” ANZ said.

Goldman and ANZ both noted that any nuclear deal with Iran was unlikely to lead to higher Iranian oil exports before the second half of the year.

“However Brent oil would likely lose its recent risk premium and fall back to the mid-50s,” ANZ said.