Oil prices fell on Thursday, extending the losses seen in the previous session. The decline came after reports that Saudi Arabia was arranging additional crude shipments through Oman, easing some fears about a shortage of oil. Because traders are still worried that the Middle East conflict could spread further, however, oil prices remained above $100 a barrel.
One major reason is that Saudi Arabia is finding ways to keep crude shipments moving despite damage to its oil infrastructure. These extra shipments are helping to reduce some of the supply disruption caused by attacks on Saudi Arabia’s East-West pipeline. The pipeline normally carries Saudi crude towards the Red Sea.
Brent crude futures fell $1.09, or 1.03%, to $104.74 a barrel at 0801 GMT on Thursday. US West Texas Intermediate (WTI) futures fell 83 cents, or 0.81%, to $101.60 a barrel. Both Brent and WTI had fallen by about $3 a barrel on Wednesday.
Saudi Arabia is offering more crude cargoes to Asian refiners through ship-to-ship transfers off Oman’s Sohar port, according to people familiar with the matter.
Traders estimate that a prolonged shutdown of the East-West pipeline could remove as much as 4% of global oil supply from the market. Under that scenario, the bank expects Brent crude to stabilise in an $85-$95 a barrel range. Because of concerns over Saudi crude exports, oil prices had climbed to around four-month highs earlier this week. Because the Middle East conflict is still escalating, oil prices are falling on Thursday, but the wider supply risks remain. Refiners are therefore prioritising diesel over gasoline as the market faces tighter diesel supplies. Because saudi Arabia’s additional crude shipments through Oman have eased immediate supply fears, while expectations of a faster restart of the East-West pipeline have also helped, oil prices are falling today mainly. Because the Middle East conflict continues to create risks for oil infrastructure and global supplies.At the same time, tight diesel supplies and disruptions to refineries in Russia and the Middle East are adding another layer of pressure to energy markets, but Brent remains above $100 a barrel.
Saudi Arabia’s additional loadings through Oman have helped calm some of the market’s immediate supply concerns. Saudi Arabia has not given a clear date for when the pipeline will fully resume operations. The possible quick restart has reduced some of the fears about a longer oil supply disruption. Riyadh had also cancelled some crude cargo deliveries to European customers. The suspension followed attacks on the East-West pipeline, which supplies crude to Yanbu. The latest Saudi shipments through Oman have reduced some of that immediate pressure, but the risk has not disappeared. Two pumping stations serving the East-West pipeline were damaged in an attack last week. The developments came after a rapid advance by the Houthis that has expanded Tehran’s reach in the regional conflict. Any further attacks on oil infrastructure or transport routes could again increase concerns about crude supplies. This is a scenario based on easing tensions, rather than a guarantee of where oil prices will trade. Crude oil supply disruptions remain the main concern for the market. But traders are also increasingly worried about tight diesel supplies. Disruptions to energy infrastructure in the Middle East and Russia are limiting the availability of refined fuels. This has created another source of pressure in energy markets. US ultra-low sulfur diesel futures also settled at a record high. This shows that the impact of the conflict is spreading beyond the crude oil market to refined fuels. He pointed to the combined impact of Middle East energy infrastructure disruptions and constraints on Russian refining capacity. A Ukrainian drone attack damaged a refinery in Yaroslavl, Russia, causing a fire. Damage to Russian refining capacity is adding to concerns about the availability of diesel and other refined fuels. This means the pressure in energy markets is no longer only about how much crude oil is available, but also about how much refined fuel can be produced and supplied.
Tim Waterer, chief market analyst at KCM Trade, said Saudi Arabia’s efforts to maintain shipments through additional loadings off Oman had eased supply worries, according to Reuters. He also said oil prices had moved down from their weekly highs after US Energy Secretary Chris Wright signalled that Saudi Arabia’s East-West pipeline could return to service faster than expected. Shipping industry sources said crude loadings at Yanbu, Saudi Arabia’s Red Sea export hub, had been suspended. The exact repair timeline is still unclear, according to assessments from three oil and security sources. DBS Bank said its base-case scenario for the fourth quarter assumes tensions between the US and Iran will ease, according to Reuters. Waterer of KCM Trade said tight supplies of refined products could become a bigger market problem than crude supply disruptions in the near term, according to Reuters. Goldman Sachs said concerns about diesel shortages and the rise in diesel prices have encouraged refiners to focus more on diesel production.
This is one reason oil prices had moved sharply higher earlier this week. Wright told CNBC on Tuesday that crude should start flowing through the East-West pipeline within days. Saudi warplanes carried out strikes in Yemen, while Houthi fighters launched drones and missiles at Saudi cities, the Iran-backed movement said on Wednesday. European gasoil futures, a key benchmark for diesel prices, settled at a record high on Tuesday. The fire was later extinguished, regional Governor Mikhail Yevrayev said on Thursday.
