Oil falls as Saudi-led military strikes end in Yemen

A motorist filling up petrol at a pump kiosk. (AFP/Fadel Senna)

NEW YORK: Oil prices fell on Tuesday as the Saudi-led coalition announced an end to its military strikes in Yemen and the market expected another rise in US crude inventories.

West Texas Intermediate for May delivery sank US$1.12, or two per cent, to close at US$55.26 a barrel on its last day the contract's trade on the New York Mercantile Exchange. Brent North Sea crude for June delivery, the global benchmark, settled at US$62.08 a barrel in London trade, down US$1.37 (2.2 per cent) from Monday's closing level.

News of the Saudi-led coalition wrapping up air strikes against rebels in Yemen, coming in afternoon trade in New York, accelerated losses on the market, said Phil Flynn of Price Futures Group. "Oil is selling because the Saudis are going to end their operation in Yemen," Flynn said. "This is why we've seen the precipitous drop in prices in the last few minutes."

The end of four weeks of air strikes against the Huthi Shiite rebel forces, with the coalition saying the rebels' threat to Saudi Arabia and neighboring countries had been removed, eased concerns about the spreading unrest in Yemen.

Although Yemen is not a particularly important oil producer, market watchers have been worried about the impact of the turmoil on the oil-rich region, notably in Iran, which is suspected of supporting the rebellion.

Expectations for Wednesday's weekly inventories report from the US Department of Energy were bearish. The country's historically high crude inventories were estimated to have increased by 2.5 million barrels in the week ended Apr 17, according to a Bloomberg News survey of experts.

Oil prices have shed about half their value since last June amid a supply glut and weak demand growth.

For many analysts, recent gains in oil prices were mainly the result of speculative buying by investors betting that the fundamentals of supply and demand would improve. News last week of a slight decline in US oil production had boosted prices.

"There is no fundamental explanation for the price spike," Commerzbank analysts said in a research note on Tuesday. "Due to sharply higher OPEC oil production, the market remains significantly oversupplied."