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Oil price hits two-week high after Yemen air strikes

Oil prices have touched a two-week high after Saudi Arabia launched airstrikes into Yemen raising fears of war on the Arabian peninsula.

Brent crude shot up more than 4pc early Thursday to $58 per barrel following the strikes by Saudi and a 10-country coalition against Houthi militia forces besieging the southern city of Aden where the country's president has taken refuge.

"The higher the oversupply on the oil market became in recent months the more the geopolitical risks were ignored," said commodities analysts at Commerzbank. "These have suddenly come back into sharp focus, however, following the Saudi-led military air strikes carried out by ten Gulf states against the Houthi rebels in Yemen."

The attacks have reversed a prolonged period of weakness in the oil market amid rising inventories in the US and the determination of the Organisation of Petroleum Exporting Countries (Opec) to maintain their current policy of pumping around 30m barrels per day, which is equal to a third of world supply.

Although Yemen has little oil it occupies a strategic location at the base of the Persian Gulf along key shipping channels leading into the Red Sea and Indian Ocean. Analysts are also concerned over the wider implications for major oil producers among the Gulf Co-operation Council states including Saudi Arabia, which is understood to be preparing to deploy ground forces.

Riyadh accuses Iran of supporting the Houthi rebels and tipping the country almost into a state of civil war. The Saudi airstrikes have won the backing of the US which has said that they are justified to support the elected government in Yemen.

"It is questionable whether this conflict will really have any lasting impact on the oil market, however. Risk premiums can disappear as quickly as they rise. Physical imbalances take rather more time to disappear, on the other hand: in any case, the US Energy Information Administration yesterday reported further rising US crude oil stocks despite the fact that refinery processing has already been upscaled slightly," said analysts at Commerzbank.