US crude oil fell more than 2% on Monday as investors weighed the threat of further attacks on Saudi Arabia's energy infrastructure against concerns that elevated prices could eventually erode demand.
West Texas Intermediate crude futures dropped 2.19% to $101 per barrel, while Brent crude futures declined 1.89% to $114.51 per barrel. The pullback followed a sharp rally on Friday, when attacks by Yemen's Houthi rebels on Saudi Arabia rekindled fears of disruptions to global energy supplies.
Tensions persisted through the weekend: the Houthis claimed they struck Riyadh's main airport and oil facilities on Saturday. Saudi authorities said on Sunday they had intercepted additional missiles and drones. Despite damage from earlier strikes, Saudi Arabia partially resumed operations at its main airport on Sunday, even as the Houthis threatened further attacks.
The ongoing hostilities have heightened concerns about the vulnerability of Saudi Arabia's energy infrastructure, with traders increasingly focused on the risk of major disruptions to production, refining, or export facilities.
In an interview, Michael Alfaro, Chief Investment Officer at Gallo Partners, estimated that geopolitical uncertainty has already added a premium of roughly $20 per barrel to oil prices. He added that a significant strike on Saudi Arabia's East-West pipeline or other refining facilities could send prices sharply higher, but that further gains would ultimately dampen consumption.
"If Brent crude breaks above $120, $130, $140 per barrel, we will likely see more demand destruction," Alfaro said. Beyond the direct threat to crude supply, damage to refining facilities could pose a more enduring challenge to global energy markets.
"The real challenge is refining capacity," he said, warning that these disruptions could evolve into a longer-term structural problem extending into 2027 and beyond.
Meanwhile, according to the energy ministers of both countries, Saudi Arabia plans to begin storing crude oil in Singapore starting in the second half of 2027, a move aimed at strengthening the resilience of its Asian supply chain.
In the United States, the Department of Energy approved the release of up to 400,000 barrels of crude from the Strategic Petroleum Reserve on Friday to address a supply disruption at a refinery in Louisiana.
However, the outlook for increased supply from US producers remains uncertain, with companies reluctant to commit to major new investments amid price volatility and geopolitical risk. Alfaro added that US producers are adding some rigs but remain cautious about significantly raising capital expenditure.
"We are not really seeing large-scale capital spending to bring on new rigs or new production capacity," he said.
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