Oil ticks lower as Saudi defense minister meets with Iran’s president in Tehran to de-escalate

Brent crude futures were 20 cents lower at $116.52 per barrel after briefly topping $117 earlier in the session. U.S. West Texas Intermediate was down 79 cents to $102.48. Prices have gained about 12% this month.

Saudi Defense Minister Prince Khalid bin Salman met Monday with Iranian President Masoud Pezeshkian and Supreme National Security Council Secretary Mohsen Rezaei.

Pakistan’s Army Chief of Staff Asim Munir and the head of Turkish intelligence Ibrahim Kalin also participated in the talks. Pakistan and Turkey are members of a defense pact with Saudi Arabia.

The meeting in Tehran came as Iran-allied Houthi militants in Yemen have repeatedly attacked Saudi Arabia in recent weeks. Houthi strikes on civilian targets, such as airports, threaten to escalate the conflict in the Middle East.

The Houthis said Monday that they fired missiles at Saudi Arabia’s international airport in Riyadh and launched drones at oil pumping stations. The Saudis have not confirmed those strikes took place.

The ongoing hostilities have some investors worried about the vulnerability of Saudi Arabia’s energy infrastructure and the risk of another major disruption to production, refining or export facilities.

Another disruption would come as global inventory levels have fallen sharply after eight months of conflict. The U.S. Strategic Petroleum Reserve, for example, is at its lowest level since 1982.

Geopolitical uncertainty has already added roughly $20 a barrel to oil prices, said Michael Alfaro, chief investment officer at Gallo Partners.

A substantial strike on Saudi Arabia’s East-West pipeline or additional refining infrastructure could send prices sharply higher, Alfaro said. But prices jumping above $120 would also destroy demand, he said.

Beyond the immediate threat to crude supplies, damage to refining infrastructure could pose a more persistent challenge to global energy markets.

“The real challenge is refining capacity,” Alfaro said, warning that the disruptions could develop into a longer-term structural problem extending into 2027 and beyond.

Meanwhile, Saudi Arabia plans to begin storing crude oil in Singapore from the second half of 2027, according to energy ministers from both countries, in a move aimed at strengthening the resilience of its Asian supply chain.

In the U.S., the Energy Department on Friday authorized the release of up to 400,000 barrels from the Strategic Petroleum Reserve to address a supply disruption at a Louisiana refinery.

Still, the prospect of additional supply from American producers remains uncertain, with companies reluctant to commit to major new investments amid volatile prices and geopolitical risks.

Alfaro added that U.S. producers were adding some drilling rigs, but remained cautious about substantially increasing capital expenditure.

“We’re not really seeing major capex additions to bring new rigs on or bring new production online,” he said.