Crude Slides as Extra Saudi Shipments Temper Supply Jitters

Key Moments

Oil Futures Extend Retreat Above $100

Oil prices moved lower on Thursday, adding to the previous session’s declines as indications of extra Saudi crude flows through Oman alleviated some concerns over supply. Even so, benchmarks remained above $100 a barrel as investors continued to monitor risks that the Middle East conflict could broaden.

Both Brent and US West Texas Intermediate futures had already shed about $3 on Wednesday.

Saudi Flows via Oman Help Offset Pipeline Disruption

Crude prices backed away from their weekly peaks after US Energy Secretary Chris Wright indicated that Saudi Arabia’s East-West pipeline could return to service sooner than markets had anticipated. At the same time, Saudi Arabia’s moves to sustain exports through additional shipments loaded off Oman have eased some of the immediate supply anxiety, according to Tim Waterer, chief market analyst at KCM Trade.

People familiar with the situation said Saudi Arabia is making more crude cargoes available to Asian refiners through ship-to-ship transfers near Oman’s Sohar port. These volumes are helping to partially compensate for the disruption following attacks on the East-West pipeline that feeds the Red Sea.

Oil had climbed to roughly four-month highs earlier in the week after shipping sources reported that crude loadings at Saudi Arabia’s Red Sea export terminal at Yanbu were halted and that Riyadh had canceled certain cargoes to European buyers. The suspension was linked to the attacks on the East-West pipeline, which supplies Yanbu.

Traders have said that if the pipeline remains out of operation for an extended period, as much as 4% of global oil supply could be affected. Saudi Arabia has not provided guidance on when the line will fully resume operations, but Wright told CNBC on Tuesday that crude should be flowing through the pipeline within days.

Geopolitical Risk in the Middle East Remains Elevated

Despite Thursday’s pullback, the market continues to factor in significant geopolitical risk tied to the intensifying conflict in the Middle East.

Two pumping stations on the East-West pipeline were damaged in an attack last week, and the timeframe for repairs is still uncertain, based on assessments from three oil and security sources.

Saudi warplanes pounded Yemen while Houthi fighters launched drones and missiles at Saudi cities, the Iran-backed movement said on Wednesday, after a rapid advance that has expanded Tehran’s reach in the regional conflict.

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 stabilise in an $85 to $95 a barrel range.

Middle Distillate Markets Face Mounting Pressure

While the focus has largely been on crude supply threats, the diesel segment has become an additional flashpoint as disruptions to energy infrastructure in the Middle East and Russia tighten fuel availability.

European gasoil futures, which serve as a key diesel benchmark, settled at a record high on Tuesday. US ultra-low sulfur diesel futures also ended at a record high.

“Product tightness could easily become a bigger issue than crude supply itself in the near term, especially with Russian refining capacity also constrained,” Waterer said.

In Russia, a Ukrainian drone strike hit a refinery in the city of Yaroslavl, causing a fire that was later brought under control, regional Governor Mikhail Yevrayev said on Thursday.

Goldman Sachs said in a note that concerns over diesel shortages and the resulting price rally had encouraged refiners to prioritise diesel production over gasoline.