"Demand destruction" versus the risk of an attack on Saudi Arabia in a tug-of-war, international oil prices fall more than 2%.

US crude fell more than 2% on Monday. Investors weighed the threat of further attacks on Saudi Arabia's energy infrastructure against concerns that elevated prices could eventually erode demand. WTI crude futures fell 2.19% to $101 a barrel; Brent crude futures fell 1.89% to $114.51 a barrel. The pullback followed a sharp rally on Friday, when attacks by Yemen's Houthi rebels on Saudi Arabia rekindled market fears of disruptions to global energy supplies. Tensions remained high over the weekend: the Houthis said they attacked Saudi Arabia's main airport, Riyadh airport, and oil facilities on Saturday. Saudi authorities said on Sunday they had intercepted more missiles and drones. Despite damage from earlier attacks, Saudi Arabia partially resumed operations at its main airport on Sunday even as the Houthis threatened further strikes. The ongoing hostilities have heightened concerns about the vulnerability of Saudi Arabia's energy infrastructure; traders are 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 added a premium of about $20 a barrel to oil prices. He added that a major strike on Saudi Arabia's East-West pipeline or other refining facilities could push oil prices sharply higher; but further gains would ultimately weaken consumption. "If Brent crude breaks through $120, $130, $140 a 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 lasting 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 lasting into 2027 and beyond. Meanwhile, according to the two countries' energy ministers, Saudi Arabia plans to store 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 US, the Department of Energy on Friday approved the release of up to 400,000 barrels of crude from the Strategic Petroleum Reserve (SPR) in response to a supply disruption at a refinery in Louisiana. However, the prospect of US producers increasing supply remains uncertain amid price volatility and geopolitical risk, companies are reluctant to commit to major new investments. Alfaro added that US producers are adding some rigs but remain cautious about significantly increasing capital spending. "We're not really seeing large-scale capital spending to bring on new rigs or new production capacity," he said.