Oil extends gains on concerns over disruption to Saudi supplies

Oil prices rose on Tuesday after attacks on Saudi Arabia’s energy infrastructure knocked the East-West oil pipeline out of service, fueling concerns that repairs to damaged energy infrastructure and transportation routes could take longer than expected.

In trading, Brent crude futures rose 21 cents, or 0.2%, to $105.89 a barrel by 11:38 GMT, while US West Texas Intermediate crude futures gained 95 cents, or 1%, to $102.33 a barrel.

Concerns over oil supplies intensified after Iran-backed Houthi forces in Yemen launched fresh attacks on Saudi Arabia on Monday, while Arab Gulf states postponed planned discussions with Iran.

The Houthis said on Monday that they fired dozens of missiles and drones at a military air base in Khamis Mushait in southern Saudi Arabia, targeting aircraft hangars, radar systems, runways and ammunition depots in retaliation for Saudi airstrikes in Yemen.

The attacks followed strikes on Saudi Arabia on Friday that Riyadh blamed on Iran-backed fighters in Iraq and that disrupted the kingdom’s East-West pipeline, which allows oil to be exported without passing through the besieged Strait of Hormuz, a waterway that previously carried around one-fifth of global oil supplies.

According to buyers and traders, Saudi Arabia could run out of crude available for export within days unless operations at the East-West pipeline resume. The attack on the pipeline put as much as 4% of global oil supplies at risk.

“The latest attack may be more serious and could threaten the remaining 2 million barrels per day of recent Yanbu exports, with the latest estimates for repair times ranging from ‘very soon’ to eight weeks,” Goldman Sachs said in a note.

Goldman Sachs analysts added that the attacks on oil infrastructure represent a significant escalation of the conflict and increase the likelihood of Brent crude exceeding $120 a barrel, based on a scenario in which average Gulf oil production in 2027 remains 4 million barrels per day below pre-war levels.

Shipping traffic through Strait of Hormuz declines

Commodity tanker traffic through the Strait of Hormuz fell to four vessels on Monday from 10 the previous day, according to preliminary Kpler data released on Tuesday, raising concerns over one of the world’s most important oil transportation routes. Before the war with Iran began on February 28, the strait carried around one-fifth of global oil supplies.

Oman’s Maritime Security Centre said on Tuesday that the Panama-flagged oil tanker El Gaia was being towed to an Omani port after a fire broke out in its engine room following an attack.

Separately, half of Russia’s six major diesel-producing refineries were forced to sharply reduce production or shut down entirely during September because of damage caused by drone attacks, according to Reuters calculations based on data from fuel market participants.