Oil Jumps on Saudi and Libya Outages

Oil jumped, as outages at a key Saudi Arabia pipeline and Libyan oil fields added supply risks to a market already feeling the pinch from barrels lost to the Iran war.

Global benchmark Brent settled up nearly 3% around $109 a barrel. West Texas Intermediate rose over 4% in a choppy session with prices highly sensitive to headlines from the Middle East and the Russia-Ukraine conflicts. Diesel futures settled at their highest on record.

Traders were parsing clues for the duration of the closure of Saudi Arabia’s East-West pipeline, which was halted last week after drone attacks. Saudi Aramco is delaying oil supplies for some European customers this month, people familiar with the matter said.

The conduit stretches the length of the Arabian Peninsula and has been a vital lifeline for oil markets during the Iran war as it allowed millions of barrels a day to avoid passing through the Strait of Hormuz.

US Energy Secretary Chris Wright, speaking on CNBC Tuesday, said the pipeline outage “will be measured in days,” repeating that it could reopen “very soon.” Saudi Arabia hasn’t said when it will resume flows, while UK authorities fear it may mostly be shut for six weeks. The outage is testing what’s left of the global oil market’s flexibility, according to Bloomberg Intelligence analysts.

“Chris Wright’s comments that the East-West pipeline could reopen in days rather than weeks are containing some of the upside, but the market is putting more weight on barrels than rhetoric,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “For now, physical tightness continues to outweigh headlines aimed at easing supply fears,” she said.

Libya, meanwhile, was forced to shut several oil fields and may declare force majeure on production after the closure of the Hamada-Zawiya pipeline.

Brent futures have rallied by about three-quarters this year, the prolonged upheaval in the Middle East – together with the fallout from the Russia-Ukraine war – has boosted inflationary pressures and helped 10-year Treasury yields jump to their highest since 2007.

“The prospect of a prolonged conflict had been building since late July and appears to be becoming a consensus view,” Walt Chancellor, an energy strategist at Macquarie Group, said in a note.

The main price for real-world barrels, known as Dated Brent, jumped above $130 this week for the first time since April. The surge came as buyers in Europe scrambled to secure alternatives after the Saudi pipeline closed.

Crude futures eased earlier in the session as Oman’s state news reported talks with the US on de-escalation in the Middle East and on renewed efforts for Russia and Ukraine to consider halting strikes on energy assets. Ukrainian attacks on refineries in Russia have helped drive diesel prices to records, and that continued overnight, with Kyiv saying it hit the Syzran refinery in Russia’s Volga region.

Diesel futures reached a session high after US Senate Majority Leader John Thune said he is “open to exploring” an export ban on diesel to try and bring down domestic prices, a policy that experts say could actually raise prices for the fuel.

Market metrics are signaling concern about tighter supplies. Brent’s prompt spread – the difference between its two nearest contracts – was over $5 a barrel in backwardation, up from less than $2 about a month ago. The bullish pattern signals short-term strength.

Oil Prices

• Brent for November settlement closed up 2.9% to settle at $108.75 a barrel
• West Texas Intermediate for October delivery rose 4.4% to settle at $105.83 a barrel.