Oil falls as Saudi crude supplies flow through Oman

Oil prices fell on Wednesday after reports that Saudi Arabia was offering additional crude cargoes through Oman, easing concerns over the scale of oil supply disruptions in the Middle East, while European diesel prices remained near record highs.

Brent crude futures fell 59 cents, or 0.54%, to $108.16 a barrel by 09:26 GMT, while US West Texas Intermediate crude futures dropped $1.20, or 1.13%, to $104.63 a barrel.

Oil prices closed more than $3 higher in the previous session 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 deliveries to European customers, deepening concerns that disruptions to one of the kingdom’s key export routes could persist for weeks.

However, Saudi Arabia is offering additional crude cargoes to Asian refiners through ship-to-ship transfers off Oman’s Sohar port after drone attacks damaged the main oil pipeline carrying crude to the Red Sea, according to people familiar with the matter.

Visible vessel traffic through the Strait of Hormuz remained in single digits, with four ships passing through on Tuesday, down from seven the previous day, preliminary shipping data showed on Wednesday. That is well below the 10-day average of 18 vessels.

The waterway carried around one-fifth of the world’s oil and liquefied natural gas supplies before the Israeli-US war against Iran began in late February.

Diesel market remains tight

Analysts said the strength in diesel prices reflects a product-specific shortage on top of higher crude costs.

They also said Europe has lost significant volumes of diesel and jet fuel supplies from the Middle East, while persistent tensions in Eastern Europe have disrupted production at several major Russian refineries and prompted Moscow to restrict fuel exports.

European gasoil futures, the benchmark for diesel prices, closed at a record high and also climbed to their highest intraday level since April on Tuesday, highlighting tight fuel markets as Middle East disruptions constrain flows of crude and refined products.

The average US diesel price surpassed $6 a gallon last week for the first time on record.

US inventories weigh on prices

Separately, US crude oil, gasoline and distillate inventories all increased last week, market sources said on Tuesday, citing data from the American Petroleum Institute.

Crude inventories rose by 7.1 million barrels in the week ended September 11, the sources said, citing API data, compared with analysts’ expectations for a decline of around 1.6 million barrels in a Reuters poll.

Unexpected increases in gasoline and diesel inventories also weighed on prices, according to API data, although rising inventories in some regions do not change the fact that the global crude market remains tight.