Oil prices Rise On Middle East Tension

Brent crude oil rose above $63 a barrel on Thursday on heightened concerns over the security of Middle East supplies as a civil war escalated in Yemen.

Warplanes from a Saudi-led coalition struck targets in and around the Yemeni cities of Aden and Ibb despite indications from Riyadh that its campaign against the Iran-allied Houthi movement would be wound down.

Yemen is a tiny oil producer but the Bab el-Mandeb Strait on its southern coast controls access to the Red Sea, Suez Canal and the ports of western Saudi Arabia, the world’s biggest exporter of crude.

Brent oil for June was up 65 cents at $63.38 a barrel by 1230 GMT. U.S. crude for June was 20 cents up at $56.36 a barrel.

Oil prices have risen as much as $10 this month due to concerns over potential disruption to Middle East supplies as well as signs of stronger global demand.

The global oil market is heavily oversupplied, with the latest estimates putting production by the Organisation of the Petroleum Exporting Countries at almost two million barrels per day above demand for its oil in the first half of this year.

U.S. government data on Wednesday showed domestic crude stockpiles rose by 5.3 million barrels last week, well above a forecast 2.9 million barrels, to a record 489 million barrels.

It was the 15th consecutive weekly build for U.S. crude stocks and pushed U.S. commercial inventories almost 100 million barrels above their level a year ago.

But world demand for oil is slowly rising, particularly for automotive fuels, and some analysts expect the global market to be balanced by the start of next year.

The U.S. Energy Information Administration said this week domestic oil production had stalled, falling for its third weekly decline in four, suggesting balances will gradually tighten as the year progresses.

Erica Blomgren, chief strategist at Norway’s SEB, said crude supply would eventually tighten.

“There are some positive signs: the crude oil market has started to rebalance, demand growth is strengthening and non-OPEC supply growth is weakening,” Blomgren said.

Executives at an industry conference in Houston this week said the cost of drilling wells in the United States had fallen much faster than expected, allowing producers to work oilfields that just months ago looked uncompetitive.