"Demand destruction" and tug-of-war over Saudi attack risks, international oil prices fall more than 2%

According to Zhihong Finance APP, US crude oil fell by over 2% on Monday. Investors are weighing threats of further attacks on Saudi Arabia's energy infrastructure against concerns that high prices could ultimately erode demand. WTI crude oil futures fell 2.19% to $101 per barrel; Brent crude oil futures fell 1.89% to $114.51 per barrel.

Before this pullback, oil prices had surged last Friday—a Yemeni Houthi attack on Saudi Arabia reignited market fears of disruptions in global energy supply. The situation remained tense over the weekend: the Houthi forces claimed to have attacked Saudi's main airport—Riyadh Airport—as well as oil facilities on Saturday. Saudi authorities said on Sunday they had intercepted more missiles and drones.

Despite earlier attacks causing damage, Saudi Arabia partially resumed operations at its main airport on Sunday—even as the Houthi forces threatened further strikes.

The ongoing hostilities have heightened concerns about the vulnerability of Saudi energy infrastructure; traders are increasingly focused on the risk of significant disruptions to production, refining, or export facilities.

In an interview, Michael Alfaro, Chief Investment Officer of Gallo Partners, estimated that geopolitical uncertainty has added about a $20 per barrel premium to oil prices.

He further stated that if Saudi Arabia's East-West pipeline or other refining facilities suffer significant damage, oil prices could rise sharply; however, further increases will eventually weaken consumption. "If Brent oil exceeds $120, $130, or $140 per barrel, we will likely see more demand destruction," Alfaro said.

Aside from direct threats to crude oil supply, damage to refining facilities could pose a longer-lasting challenge to the global energy market. "The real challenge is refining capacity," he said, warning that these disruptions could become a more long-term structural issue, continuing into 2027 and beyond.

Meanwhile, according to energy ministers from both countries, Saudi Arabia plans to begin storing crude oil in Singapore from the second half of 2027, in a move designed to strengthen the resilience of its Asian supply chain.

In the US, the Department of Energy last Friday approved the release of up to 400,000 barrels of crude oil from the Strategic Petroleum Reserve (SPR) to address supply disruptions at a Louisiana refinery. However, the outlook for increased US producer supply remains uncertain—amid price volatility and geopolitical risks, companies are reluctant to commit to major new investments.

Alfaro added that US producers are bringing some rigs online but remain cautious about making substantial increases in capital spending. "We really haven't seen large-scale capital expenditures to activate new rigs or bring new capacity online," he said.