If Yemen only produces 0.2% of the World's Oil, why is the price of Oil rising?

Dear Readers

As the advancements began yesterday on the Houthi controlled Yemen, we saw the price of oil jump almost 5%.

In this post, I attempt to break down the Economic reasons for this geo-political market shock & question the continuation of this rise or (as per my previous posting) a fall lower to $20 - possibly $10.

Fact

Yemen produces 0.2% of the World's oil!

Why did it have such a shock on the market? 

Albeit an insignificant Oil producer, the geographic location of Yemen is extremely relevant.

The nation shares it's main border with Saudi Arabia - the world's biggest Crude exporter and sits on one side of the oil shipping point used by crude tankers heading West from the Persian Gulf (transiting nearly 7 million barrels of oil a day).

Yemen is also located on Bab el-Mandeb, the 4th biggest shipping chokepoint in the wold by volume! It's closure may keep tankers from the Persian Gulf and reaching the Suez Canal & SUMED Pipeline.

Will Oil continue to rise?

"As the regional conflict intensifies, the price of oil will continue to rise" Kleinmen, Citibank Analyst. 

Even though prices are still down 40% from last year, a rally from $50 would be significant for the markets... adding an extra spice into the current EU Crisis and perhaps a catalyst for a USD reversal. 

However, other analysts & even the Foreign Minister of Yemen says that this attack is a "Necessary, short lived attack" to suppress the Rebel forces.. Which would imply this rally being concluded as a shock and the coming week(s), the markets could return below $50 per barrel. 

The fact is that the Oil market is still heavily over-supplied & storage levels are running at almost full capacity. Although, some more bullish investors are seeing this as a market-bottom - hinting at a reversal. 

I personally think, it just reminds people how sensitive the price of oil is - especially in relation to geo-political shocks & impacts on supply lines. 

Trading Oil with Atom8... Coming soon for April 2015 

Thank you for reading & as always... 

- Peace & Love

Anish