By Barani Krishnan

Investing.com — Saudi Arabia warns that it can’t be responsible for any oil supply shortages in the world, given its ongoing attack on its facilities. The kingdom’s energy ministry said the international community needs to realize the role of Iran in supporting Yemeni Houthi rebels to target oil and gas production sites.

The Saudi warning has three main risks to the world’s oil markets 

The first is that the kingdom’s energy company Aramco (SE:) cannot be blamed if it is unable to deliver oil as contracted due to the impact of such attacks, a situation typically known in the industry as the declaration of force majeure.  

Aramco may find that these attacks are enough to distract it – second-guessing rebels at the next locations they will target, reinforcing security and resilience at such sites – and that Aramco has very little energy and time for more productive activities, including the production of oil. 

Even without the terrorist attacks, it is clear that neither the Crown Prince Mohammed bin Salman, nor his brother Abdulaziz (the energy minister), had any intention of increasing the Saudi crude oil production. Their goal was to get the best possible price from oil prices resulting from the Russia-Ukraine conflict. Their excuses for not adding a barrel more than they desire have been strengthened by the attacks.

Third, the Saudi warning about Yemeni Houthi rebels poses a risk to oil market markets. It could increase demand from the U.S. as well as other powers for additional information on the Iran nuclear negotiations. The demand might be for Tehran to immediately cease any assistance – implied or actual – for Houthi-based terrorist attacks. 

Friday’s attack on the Aramco oil depot in Jeddah has already been roundly condemned by the international community, with U.S. National Security Advisor Jake Sullivan branding it as one of those “unprovoked acts of terrorism aimed to prolong the suffering of the Yemeni people”. 

Morally, the U.S. should demand Iran to stop supporting the Yemeni Houthi rebels that are attacking Saudi Arabia’s energy infrastructures. This is a requirement if Iran wants to sign a nuclear agreement. This is not an easy task. 

Negotiations between Iran’s world powers and Iran are currently in their 11th month and could be finalized or collapse. At this point, adding yet another clause – written or expressed – to the spirit of the agreement could virtually be the final Saudi straw that breaks the Iranian camel’s back. 

They don’t want to see the 2015 nuclear deal, which was originally signed by Obama and still in force until Trump’s 2018 cancellation, resurrected in any form by the Biden government. The argument from the Saudis is that Iran would not be subject to U.S. restrictions on oil and use that money to finance further terror against Saudi Arabia. 

Of course, the Biden administration is aware of this. It is also aware that the Saudis are determined to control every aspect of the oil market. Their market share in OPEC+ is under the utmost control of them. 

Despite the fact that they are in a position of strength at the top, OPEC could see Iran re-elected. This might cause problems for Saudi Arabia. Crown Prince MbS’ colluding with Donald Trump and the former president’s son-in-law/adviser Jared Kushner to make Iran a pariah within the same OPEC it helped found has only increased the Mullahs’ enmity with the House of Saud. It’s going to take a lot of diplomacy to resolve this on both sides and the Biden administration might decide – correctly – at this point that it’s not Washington’s problem to babysit.

OPEC also demonstrates that American commerce is based on free markets, competition and the pursuit of those goals. Saudi Arabia is doing little to reduce the high oil prices. Their supporters – which include all those long the market – immediately get into a “why should they?” chorus whenever the question is raised.  Unless Iran breaches uranium enrichment, however, world power at the negotiating table – which is interestingly also includes OPEC+ oversight and new ally Russia – won’t hold back the deal.

Oil Weekly Market Activity

Crude prices rose more than 1% after a missile attack on an oil storage facility in Jeddah. This reversed a drop of 2% earlier in the day, giving the market its highest weekly gain since the Russian invasion.

Yemeni Houthi rebels claimed responsibility for the attack, with a spokesperson for the group saying it “would be announcing more details on a wide operation in Saudi Arabia”. 

Twitter was abuzz Friday, with photos of huge black smoke plumes rising in Jeddah. This is the second-largest city of Saudi Arabia after Riyadh. Aramco owns several of these facilities.  

“It’s the last thing we need in a tight market situation like this but I guess oil bulls can thank the Houthis for sending crude back to $120 levels before the weekend,” said John Kilduff, partner at New York energy hedge fund Again Capital.

​​London-traded , the global benchmark for oil, settled up $0.21, or 0.18%, at $119.24 per barrel. The oil price had dropped more than 2 percent earlier and touched a low session of $115.21.

Brent gained 11.8% over the past week when you take into consideration other price increases on Monday and Wednesday. It was Brent’s biggest weekly gain since the 20% rally in the week that marked the start of Russia’s Feb. 24 invasion of Ukraine.

U.S. crude’s , or WTI, benchmark settled up $0.24, or 0.21%, at $112.58. WTI fell to $108.77 from earlier. The US crude benchmark rose 8.8% during the week.

Crude prices fell earlier on Friday on the easing of some supply concerns on the European market, particularly the partial export resumption from Kazakhstan’s CPC crude terminal that Russia’s energy minister said on Wednesday might be out for two months due to storm damages.

Price pressures were further impacted by earlier reports of a coordinated release from crude oil reserves from other consuming countries and the United States.

WTI Technical Outlook Oil

Sunil Kumar Dixit (chief technical strategist, skcharting.com) stated that WTI must hold above $112 in order to exceed $120 over the next week.

A lower daily settlement could cause the U.S. crude index to fall to $104, or even $98, Dixit stated.

He noted that WTI rose net $9.80 in the week just ended, following a correction of two weeks that saw it go from $130 to $93 and then rebound strongly.

Dixit noted that WTI’s weekly stochastic readings are 74/67 and RSI of 72, both suggest further upside potential. 

“For the week ahead, as long as oil sustains above $112, prices are likely to advance to between $116 and $122.”

“But weakness below $112 can push oil down to $109 – $107 first and later $104, which will mark an acceleration point to the further downside of $98.”

Market volatility may be peaking with the March monthly closing and quarter-end due next week, along with an abundance of important economic data.

Weekly Gold Market Activity 

Gold prices fell on Friday due to an increase in U.S. Treasury yields. However, the yellow metal maintained a week-long gain of over 1% thanks to geopolitical tensions caused by war in Ukraine as well inflation worries that made Americans feel more anxious than they did during the 2008 and 1980 recessions.

The most-active gold futures contract on New York’s Comex, , settled the day’s trade down $4.45, or 0.23%, at $1,957.75 an ounce. The benchmark gold futures contract saw a gain of $24.90 or 1.3% for the week.

Friday’s slide in gold came as the U.S. Treasury note rose by 4.8%, adding to Thursday’s 3.5%, pressuring bullion which is non-yielding. After a tumble last week on the Fed’s modest first pandemic-era rate hike of 25 basis points, yields have started climbing again as the central bank announced plans for more aggressive hikes of 50 basis points in the future to contain inflation at 40-year highs. 

A climate of high political and economic anxiety is a favorable environment for gold, as has the conflict in Ukraine.

Craig Erlam, analyst at online trading platform OANDA, said gold will likely continue being “well supported against the backdrop of sky-high inflation and immense uncertainty”.

“That doesn’t necessarily mean we’re heading for record highs, which we currently sit a little more than 5% below,” Erlam added, referring to Comex’s all-time highs of $2,121 for gold. “But, as is the case more broadly right now, the main catalyst continues to be the constant flow of headlines which will continue to determine the path of travel for the yellow metal.”

The U.S. Gross Domestic Product, also known as GDP, increased by 5.7% in the last year. This was its highest growth rate since 1984. The Consumer Price Index (or CPI) measured inflation at a faster pace and grew by 7% in 2021. It was its fastest growth rate since 1981. 

Since the beginning of 2022, the CPI continues to grow rapidly. In February it reached 7.9% annual growth compared with 2.8% growth for GDP. The central bank’s tolerance for inflation is a mere 2% per year and it vowed to slow price pressures with a series of rate hikes through next year.

According to the University of Michigan’s Consumer Sentiment Survey, Americans worry more about inflation than during the two worst US recessions of 2008 and 1980, which was closely followed by the University of Michigan on Friday.

“With an expected year-ahead inflation rate at 5.4%, the highest since November 1981, inflation was mentioned throughout the survey, whether the questions referred to personal finances, prospects for the economy, or assessments of buying conditions,” Richard Curtin, chief economist for UMich’s Surveys of Consumers, said in a statement.

Umich’s Consumer Sentiment Index, updated every two weeks, remained at August 2011 lows, while people’s worries about inflation appeared to grow more dire in a nation where consumer spending made up 70% of the economy, Curtin said. 

“When asked to explain changes in their finances in their own words, more consumers mentioned reduced living standards due to rising inflation than any other time except during the two worst recessions in the past fifty years: from March 1979 to April 1981, and from May to October 2008,” Curtin added.

Technical Outlook for Gold

Gold’s test will be to get above the $1,962 – $1,968 levels and eventually $1,972 – $1,985 for a return to $2,000 levels.

Dixit from Skcharting.com stated that the failure to reach and maintain these levels could lead to yellow metal falling back to the $1920-$1,910 bottoms. His projections were based on the.

Dixit observed that the yellow metal rebounded from its plunge to $1.910 at midweek. It traded within the $1962-$1,943 area before reaching $1,966 and then settled the week at $1.957.

He said that the weekly stochastic readings of 61/62, and RSI reading 63, were both in a favorable position to continue upside. However, there is still room for correction.

“The week ahead can begin on a flat note.

“The upward momentum will come if prices manage to break and sustain above $1,962 – $1,968 and test $1,972 – $1,985, which is the acceleration point for a further up move to $1,998 – $2,010.”

“Failure to break and sustain above $1,962 – $1,968, or rejection at the same areas, may cause gold to slip to $1,950 – $1,943 again. Breaking this may retest $1,937 and extend the downside to $1,920 – $1,910.”

He placed overall weekly support at $1.895- $1.870 and resistance as $1.998- $2.010.

Disclaimer:Barani Krishnan has no positions in the securities and commodities that he writes about.