Oil benchmarks retreated on Friday following a strong surge in the previous session, as energy markets cooled off from a geopolitics-driven rally despite new Middle East supply risks.
Brent crude futures retreated 3.3% to $104.10 per barrel, while Dubai 1st Line (Platts) energy futures dipped 3.3% to $93.93/bbl.
"Oil prices surged again yesterday as tensions intensified in the Red Sea, while a sharp drop in Saudi output added another layer of supply anxiety," ING analysts said.
Analysts pointed out that yesterday's spike was driven by escalating Red Sea tensions, fierce fighting between Yemeni Houthi militants and Saudi-backed forces, and unconfirmed reports of smoke near Saudi Arabia's East-West pipeline to Yanbu.
Adding to supply anxieties, Saudi Arabia reported to OPEC that its August production slumped to just 6.23 million barrels per day, its lowest level since 1990, Saxo Bank analysts said.
On the domestic inventory front, the Energy Information Administration reported that US commercial crude inventories decreased by 400,000 barrels to 424.1 million barrels for the week ending September 4, falling short of market expectations for a larger draw.
Meanwhile, demand pressures are building in Asia as China increases physical crude purchases.
Independent Chinese refiners have steadily ramped up run rates to nearly 63% from a July low of 45%, alongside rising runs by state refiners, signaling that renewed Chinese demand could further amplify global market sensitivities if supply disruptions persist.
"Signs of increased buying appetite from China will concern markets," ING analysts said.