Oil prices fall amid Middle East supply disruptions and pipeline attacks
Market Reactions to Middle East Tensions and Oil Supply Disruptions
By Arathy Somasekhar
Oil Price Movements and Investor Sentiment
HOUSTON, Sept 17 (Reuters) - Oil prices settled about 1% lower on Thursday, but stayed above $100 a barrel, as investors weighed the disruption from strikes by Saudi Arabia and Yemen's Iran-backed Houthis against reports that additional Saudi crude barrels could reach global markets and ease supply concerns.
Escalation of Middle East Conflict
Saudi Arabia and Yemen's Iran-backed Houthis exchanged fresh strikes across their border on Thursday, with the spread of the Middle East war to Yemen and Saudi Arabia threatening to worsen the global energy supply shortage caused since the United States and Israel attacked Iran in February.
Brent and WTI Price Fluctuations
Brent crude futures closed down $1.01, or 0.95%, at $104.82 a barrel, while US West Texas Intermediate futures fell 52 cents, or 0.5%, to $101.91 a barrel. Both benchmarks had fallen about 3% on Wednesday.
Brent had fallen over $3 earlier in the session to its lowest since September 10, while WTI also fell over $3 to its lowest since September 11 after reports that Saudi Arabia was offering more crude cargoes to Asian refiners through ship-to-ship transfers off Oman's Sohar port. This will offset some of the disruption caused by attacks on the East-West pipeline to the Red Sea.
Pipeline Attacks and Supply Restoration Efforts
East-West Pipeline Disruptions
Saudi Arabia was also seeking to return about half the capacity of its East-West oil pipeline within days after the link was halted last week following drone attacks, Bloomberg reported.
Oil prices had climbed to around four-month highs this week after shipping industry sources said crude loadings at Saudi Arabia's Red Sea export hub of Yanbu had been suspended and Riyadh had canceled some cargo deliveries to European customers. The East-West pipeline supplies Yanbu.
Potential Impact on Global Oil Supply
Traders said a prolonged closure of the pipeline could cut off as much as 4% of global oil supply. Saudi Arabia has not said when operations might resume, but Wright told CNBC on Tuesday that crude should be flowing through the pipeline within days.
Three pumping stations serving the East-West pipeline were damaged in an attack last week, and the repair timeline remained unclear, according to assessments from three oil and security sources.
Market Analysis and Outlook
Expert Commentary
"Oil prices extended the previous session's losses on Thursday as concerns over Middle East supply disruptions eased to some extent," said Christopher Tahir, senior market strategist at trading platform Exness, citing increased crude flows through additional offshore loadings via Oman and efforts to restore the East-West pipeline.
"Nevertheless, the physical market remains tight, limiting the scope for further declines. Tanker traffic through the Strait of Hormuz continues to fall, while tensions between Saudi Arabia and the Houthis leave Red Sea shipping and regional energy infrastructure exposed to renewed disruption," Tahir added.
Price Forecasts
Singapore's DBS Bank said its base-case scenario for the fourth quarter assumes tensions between the US and Iran will ease, allowing Brent to stabilize in an $85 to $95 a barrel range.
Diesel Market Feels the Squeeze
Diesel Supply Constraints
While crude supply disruptions remain the market's main concern, tightening diesel supplies have emerged as another source of pressure as disruptions to energy infrastructure in the Middle East and Russia constrain fuel availability.
Record High Diesel Prices
European gasoil futures, a benchmark for diesel prices, settled at a record high on Tuesday. US ultra-low sulfur diesel futures also settled at a record high.
Russian Refinery Attack
A Ukrainian drone attack damaged a refinery in the Russian city of Yaroslavl, causing a fire that was later extinguished, regional Governor Mikhail Yevrayev said on Thursday.
Contributors
(Reporting by Anushree Mukherjee in Bengaluru,Yuka Obayashi in Tokyo and Trixie Yap in Singapore; Editing by Sonali Paul, Christian Schmollinger, Mark Potter, Nick Zieminski and David Gregorio)