Oil Climbs Amid Saudi Pipeline Halt
by Bloomberg | M. Gindis, C. Gorrivan, A. Longley
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas
Crude gained as the Saudi East-West pipeline closure heightened fears of tighter global supplies.
Oil rose, with fears of a tightening market after Saudi Arabia closed a major crude pipeline pitted against signs that the US may still be seeking a diplomatic resolution with Iran.
Brent edged 1% higher to settle below $106 a barrel, after earlier rising as much as 5%, while West Texas Intermediate was around $101. The commodity initially rallied on the halt of the kingdom’s East-West pipeline, which has the capacity to carry about 7 million barrels a day to the Yanbu hub on the Red Sea that has been key to bypassing the Strait of Hormuz since the Iran war choked off exports from the Persian Gulf.
Some of those gains faded by midday New York time after US President Donald Trump posted a series of social media comments suggesting progress on both the Iran war and the Russia-Ukraine conflict. The US leader said Kyiv and Moscow had agreed not to strike energy targets and that Iran “wants to make a deal, quickly and badly.” He added the US was open to the concept of engaging with Tehran.
Iran, for its part, denied Trump’s claim, according to the country’s state-run media. Ukrainian President Volodymyr Zelenskyy said Ukraine would suspend its strikes on Russian energy targets “if our partners are ready to ensure that Russia genuinely refrains” from further attacks on its critical infrastructure. The Kremlin did not immediately respond to a request for comment.
Still, traders seized on the diplomatic rhetoric to unwind long positions that had become increasingly stretched. Crude’s nine-day relative strength index has been trading in overbought territory for the past week, leaving room for further downside. Trend-following commodity trading advisers are also holding at 100% maximum long in Brent, suggesting they’ve exhausted buying capacity, according to Kpler.
Investors are also assessed conflicting signals over when the Saudi pipeline would reopen. The Associated Press reported it will be out of service for several weeks, citing two regional officials. US Energy Secretary Chris Wright, meanwhile, said on Monday he expects the Saudi pipeline to be up and running “very soon.” Saudi Aramco didn’t respond to earlier inquiries about how long the disruption would last.
The market impact will also depend on how much oil can be drawn from storage at Yanbu, how long it will take to get crude flowing again and how much can be rerouted by sneaking barrels through the vital energy chokepoint, the Strait of Hormuz.
Oil prices were already rallying before Monday’s barrage of news. The global benchmark moved back above $100 for the first time since July last week, as sliding inventories and rising Chinese buying tightened the market. Brent crude is up more than 75% this year.
The crisis is delivering an inflationary jolt to the global economy as the cost of natural gas and fuels also surge. After US data showed the pace of consumer price gains marched higher in August, the Federal Reserve is widely expected to raise rates this week.
The market for oil products has been especially strained. Diesel futures are trading at around $200 a barrel, and refiners are now paying enormous premiums to secure crude as the cost of selling fuels is soaring. They’re willing to pay record amounts for ships to carry those barrels across the world, with vessel availability also incredibly scarce.
Meantime, tensions over Hormuz remain high and escalating fighting between the Houthi militant group and Saudi Arabia-backed forces has complicated matters. A meeting between Iran and several Gulf Arab nations over a temporary shipping lane through the waterway was postponed, highlighting tensions with the Islamic Republic following the recent flare-up in fighting.
Wright said he was confident that flows through Hormuz will increase in the weeks ahead, and that over 12 million barrels went through the chokepoint last night.
Even before the assault on the East-West conduit, oil output from Saudi Arabia had been under pressure. Riyadh recently reported to OPEC that its crude production last month sank to the lowest level since 1990.
The kingdom’s storage at Yanbu could support exports for five to seven days, but a pipeline outage beyond that would cause “huge disruption,” said Suvro Sarkar, head of energy research at DBS Bank Ltd. Pending clarity on repairs, the near-term path pointed toward a test of $120 a barrel, he said.
Oil Prices
- WTI for October delivery advanced 1.3% to settle at $101.39 a barrel in New York.
- Brent for November settlement rose 1% to settle at $105.68 a barrel.
by Bloomberg | M. Gindis, C. Gorrivan, A. Longley
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas