Oil falls amid Mideast diplomacy hopes, Saudi export reports

Oil prices fell on Monday, weighed down by hopes for a cooling in Middle East tensions and reports of improving Gulf oil flows despite rising tensions between Iran-backed Houthis and Saudi-aligned forces in Yemen.

By 09:44 ET (13:44 GMT), benchmark Brent crude futures had fallen by 3.1% to $100.62 a barrel, while U.S. West Texas Intermediate crude futures had dropped by 3.9% to $96.38 a barrel.

"The pullback comes despite ongoing geopolitical risks and continued concerns over global oil supply disruptions," analysts at ING said in a note. They added that "profit-taking after recent gains," together with hopes for constructive discussions at this week’s UN General Assembly and an upcoming meeting between U.S. President Donald Trump and Chinese counterpart Xi Jinping, helped improve market sentiment.

Brent oil posted weekly losses on Friday, as signs of potential diplomatic progress and efforts to restore disrupted Saudi oil flows eased some of the market’s supply fears. 

Fighting between the Houthi militants and Saudi-backed forces reportedly intensified over the weekend, as both sides vie for control over positions dominating an all-important shipping chokepoint. Battles were waged in the mountainous territory of southwest Yemen on Sunday, according to The New York Times, citing a Saudi army officer.

The latest development came as the Houthis push to gain leverage over the Bab el-Mandeb Strait, a narrow waterway linking the Gulf of Aden to the Red Sea. Saudi Arabia, a major oil producer, has relied on the Bab el-Mandeb as an alternative route to send crude out to global markets since Iran effectively shuttered the nearby Strait of Hormuz.

The Houthis added that it had launched missiles and drones at the Saudi capital of Riyadh on Saturday, and targeted oil facilities, in response to Saudi air attacks inside Yemen, the NYT reported.

Trump has reportedly rebuffed requests for military support from the de facto Saudi leader, Crown Prince Mohamed bin Salman. But Trump appears to be monitoring the widening conflict, with Reuters reporting that he spoke with Yemen’s president on Sunday.

Meanwhile, the U.S. and Iran exchanged fresh threats, as a war which has dragged on since late February shows little sign of de-escalating. Trump threatened to wipe out Iran’s leadership if Tehran did not attempt to make deal, while Iran’s military warned it would retaliate to any renewed attacks.

Despite the prospect of continued supply disruptions due to the protracted conflict, there were some indications that oil is getting out of the Gulf. Data from shipping analytics firm Kpler showed that Saudi oil exports had bounced back to a little over 4 million barrels per day so far in September, up from a 2.4 million bpd in August. Riyadh also hopes to restart oil flows through its damaged east-west pipeline quickly, although analysts have expressed doubts that this goal could be achieved, according to media reports.

The head of U.S. Central Command said that the volume of crude oil, cargo, and liquefied natural gas over the last two weeks was higher than at any time in the past six months, Reuters reported.