Oil Prices Fall as Saudi-Led Military Operation in Yemen Ends

By Georgi Kantchev And Nicole Friedman 

NEW YORK--Oil prices Tuesday fell as a Saudi-led coalition announced the end of its nearly monthlong military operation in Yemen, lowering concerns violence in the Middle East could affect oil production.

Though Yemen has little oil production, the military campaign had sparked fears that the violence could spread to other oil-exporting countries in the region and interrupt output there.

"I don't think anybody expected the military operation to end so quickly, " said Phil Flynn, analyst at the Price Futures Group in Chicago. In the oil market, "it definitely accelerated the selling."

Light, sweet crude for May delivery settled down $1.12, or 2%, to $55.26 a barrel on the New York Mercantile Exchange, a one-week low. The May contract expired at settlement Tuesday. The more-actively traded June contract fell $1.27, or 2.2%, to $56.61 a barrel.

Brent, the global benchmark, settled down $1.37, or 2.2%, to $62.08 a barrel on ICE Futures Europe.

Market participants are also waiting for the latest U.S. supply data, due Wednesday. U.S. crude-oil supplies are at their highest level in more than 80 years.

Analysts surveyed by The Wall Street Journal expect the report to show that oil stockpiles rose by 2.8 million barrels last week, while gasoline supplies fell by 800,000 barrels and stocks of distillates, including diesel fuel and heating oil, are expected to rise by 1.1 million barrels.

The American Petroleum Institute, an industry group, will release its own U.S. inventory data later Tuesday.

The U.S. Energy Information Administration has reported a drop in weekly production in two of the past three reports, and many market watchers are also waiting to see if the trend will continue.

"The weekly numbers on production are an estimated output of a model, rather than being observed data," and therefore are unreliable, said Citigroup in a note. "The risk to the market is now that the rally has come too soon for supply to get meaningfully curtailed," which could set prices up to drop again in the second half of the year, the bank said.

U.S. oil prices have risen close to 30% since a low in March on expectations the oversupplied market will come into balance later in the year. But analysts have warned that though U.S. oil production could stop growing or even fall in the coming months, other major producers are still pumping at a fast pace, exacerbating the global glut.

"While the shift in sentiment isn't necessarily flawed, the swing to the extreme is overdone," said analysts at London-based consultancy Energy Aspects.

Gasoline futures settled down 4.34 cents, or 2.2%, at $1.8881 a gallon. Diesel futures slipped 2.39 cents, or 1.3%, to $1.8532 a gallon.

Write to Georgi Kantchev at [e-mail] and Nicole Friedman at [e-mail]

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