Oil extends losses as supply disruption fears ease

Oil prices fell on Thursday, extending their losses after reports of additional Saudi crude shipments through Oman helped ease supply concerns, although prices remained above $100 a barrel amid fears of a broader conflict in the Middle East.

Brent crude futures fell $1.50, or 1.42%, to $104.33 a barrel by 10:00 GMT, while US West Texas Intermediate crude futures dropped $1.09, or 1.06%, to $101.34 a barrel. Both benchmarks had fallen by around $3 on Wednesday.

People familiar with the matter said Saudi Arabia is offering additional crude cargoes to Asian refiners through ship-to-ship transfers off Oman’s Sohar port, helping offset some of the disruption caused by attacks on the East-West pipeline running to the Red Sea.

Oil prices climbed to around four-month highs earlier this week after shipping industry sources said crude loading operations at Saudi Arabia’s Red Sea export hub of Yanbu had been halted and Riyadh had canceled some cargoes scheduled for delivery to European customers. The disruption followed attacks on the East-West pipeline, which supplies oil to Yanbu.

Traders said a prolonged shutdown of the pipeline could disrupt as much as 4% of global oil supplies. Saudi Arabia has not specified when operations will resume, but Wright told CNBC on Tuesday that crude should begin flowing through the pipeline within days.

Supply risks persist

Despite Thursday’s decline in oil prices, concerns over an escalation of the conflict in the Middle East remain.

Assessments prepared by three sources in the oil and security sectors indicated that two pumping stations serving the East-West pipeline were damaged in last week’s attack, while the timeline for repairs remains unclear.

Diesel market faces mounting pressure

While disruptions to crude supplies remain the market’s primary concern, tightening diesel supplies have emerged as another source of pressure, as damage to energy infrastructure in the Middle East and Russia restricts fuel availability.

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.

Goldman Sachs said in a note that concerns over diesel shortages and the resulting surge in prices have encouraged refiners to prioritize diesel production at the expense of gasoline.