Brent crude climbed above $108 a barrel on Sunday after Saudi Arabia's East-West pipeline, a key bypass for the Strait of Hormuz, remained shut following a drone attack. A planned diplomatic meeting between Iran and Gulf Arab states was abruptly postponed the same day, and a tanker came under attack in the Strait, deepening the region's oil-supply crisis.
Brent crude, the international benchmark, traded 3.51% higher at $108.28 a barrel on Sunday, while U.S. West Texas Intermediate futures rose 3.46% to $103.51 a barrel by 4:56 a.m. ET. The jump extends a rally that began after Saudi Arabia shut its main crude oil export bypass earlier last week.
Pipeline shutdown drags on
Drones launched from Iraq damaged the East-West pipeline on Thursday, forcing Riyadh to close the artery. The kingdom has not disclosed how badly the pipeline is damaged or how long it will stay shut. The line can carry 7 million barrels per day and connects Saudi oil fields near the Persian Gulf to export terminals on the Red Sea, giving Riyadh a way to route crude around the Strait of Hormuz while Iran and the U.S. contest control of it.
Saudi Aramco CEO Amin Nasser said on the company's August earnings call that the pipeline has done more to stabilize oil markets than the strategic-reserve releases led by the United States. Its closure therefore strips out one of the few remaining alternative routes for Saudi exports.
Hormuz diplomacy stalls, another tanker hit
A diplomatic meeting between Iran and Gulf Arab states, originally set for Monday in Oman, was abruptly postponed after the pipeline attack. According to Oman's Foreign Minister Badr Albusaidi: "the regional meeting set for tomorrow in Salalah has been postponed". Separately, Investinglive reported that the postponed talks over a potential temporary shipping arrangement through the Strait weighed on sentiment as hopes for a near-term easing faded.
The security situation stayed volatile on Sunday, with another tanker coming under attack and catching fire, according to the United Kingdom Maritime Trade Operations Center. Houthi militants in Yemen also struck Saudi energy facilities and other civilian sites early last week, injuring more than 70 people, according to Saudi state media.
With both the Hormuz talks and the pipeline route stalled, Investinglive noted that tanker rates have also surged as shipping becomes more difficult and costly amid persistent inflation concerns. Traders are also watching Wednesday's Federal Reserve rate decision for its bearing on markets.
Sources: CNBC, Investinglive
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