Oil up after Saudi air strikes in Yemen; dollar limits gains

[Wiljor]

NEW YORK (Reuters) - Oil prices rallied for a second straight day on Thursday after Saudi Arabia and its Gulf Arab allies began air strikes in Yemen, sparking fears of a bigger Middle East battle that could disrupt world crude supplies.

The military operation against Houthi rebels, who have driven the president from Yemen's capital Sanaa, has not yet affected oil facilities of major Gulf producers.

But fears the conflict could spread has stoked concerns about the security of Middle East shipments, even as analysts and commentators doubt the probability of an all-out war amid continued signs of crude oversupply.

Benchmark Brent oil jumped 5 percent early in the session before giving back some of that in European trade as the dollar rebounded from Wednesday's drop, making commodities denominated in the greenback costlier in other currencies. [uSD/]

In New York, Brent LCOc1 was up $2.30, or 4 percent, at $58.78 a barrel by 12:00 p.m. EDT as the dollar held its strength, particularly to the euro EUR=. U.S. crude CLc1 rose $1.60 to $50.81.

"A lot of times you get the market reacting dramatically right off the bat to events like these, before people begin putting things in perspective after a greater study of the risks involved," said Phil Flynn, analyst at the Price Futures Group in Chicago.

"That aside, there is a growing realization that the oversupply in crude may not be the only thing in pricing oil now," Flynn said.

Yemen's relatively small oil output has been disrupted for months by the conflict. More importantly, Arab producers have to ship their crude past the Yemen coastline via the Gulf of Aden to get to the Suez Canal, a key passageway to Europe.

The waters between Yemen and Djibouti, known as Bab el-Mandeb, are less than 40 km (25 miles) wide, and considered by the U.S. Energy Information Administration to be a "chokepoint" to global oil supplies. The EIA estimated 3.8 million barrels per day passed through Bab el-Mandeb in 2013.

Egypt has sent naval vessels to help secure the sea lanes, while Kuwait boosted security around its oil sites. Iran, which backs the Houthi rebels, denounced the Saudi strikes.

Michael Cohen, who heads energy research at Barclays, said the conflict potentially exacerbates tensions in Libya, Syria and Iraq, with Saudi Arabia becoming an activist of its regional policy.

"What’s going on right now is a trend in the region," he said.

http://mobile.reuters.com/article/businessNews/idUSKBN0MK0Z020150326?irpc=932

[skeetdog]

Thanks Wiljor...Aint it funny how things happen in a progressive manner and not all at one time...All the oil that Saudi has been pumping, at a covenant time to flood the market and drop oil prices. Everybody has a good idea of the other guys demands and capacities it's time to make another move. Saudi has been building their cash reserve for the pass 8 months pumping record amounts on production. Now that Russia knows where they stand, it's time to give the brothers of OPEC their needed ppb. What's the cure all for this region...start a conflict or create one. The ppb is very essential to Iraq at this time is not coincidental...With the timing of the Q1 and Abadi statements and action of the past week including this particular article just strike me as too covenant....  

[Wiljor]

Agreed Skeetdog, oil is a well orchestrated game of chess on a global scale. The ME has to pull the strings and call the shots with other countries being the puppets on a string. To much money at stake my friend.