Oil prices dropped on Thursday as Saudi Arabia moved to restore about half the capacity of its key East-West pipeline days after drone strikes forced its shutdown. Brent and WTI both eased even as traders warned that underlying supply risks from the Iran war remain unresolved.
WTI for October delivery fell 0.5% to settle at $101.91 a barrel. Brent for November settlement fell 1% to settle at $104.82 a barrel. Saudi Arabia is seeking to return roughly half the capacity of its East-West pipeline within days after shutting it last week following drone strikes, easing some concern about lost crude cargoes tied to the Iran conflict.
Physical market clarity eases panic
The clearer picture on flows calmed some of the panic in the physical market, though Dated Brent still fell further on Thursday to trade around $125 a barrel. Meanwhile, Reuters reported China asked Iran to help rein in Yemen's Tehran-backed Houthi militants, a move that could loosen their grip on the Bab el-Mandeb strait, another corridor vital for shipping and energy markets.
But supplies still remain tight, said Rebecca Babin, senior energy trader at CIBC Private Wealth Group, and plenty of risks remain as the US-Iran war hampers Middle East energy flows while the Russia-Ukraine conflict drags on. Conditions may still deteriorate: President Donald Trump told Axios he was nearing a major decision on whether to re-escalate attacks on Iran ahead of a meeting with Gulf leaders next week in New York.
Rally has fanned inflation pressure
Crude has rallied more than 70% this year, fanning the inflation pressures that prompted the Federal Reserve to raise interest rates on Wednesday and signal further tightening. Stocks joined bonds higher on falling oil prices and optimism that Fed policy can help keep inflation under control even amid energy shocks from the Iran war.
Thursday's decline also partly reflects profit-taking after two weeks of gains. WTI shifted out of overbought territory on Wednesday, according to short-term indicators, making an extensive sell-off less likely. Technical indicators show Brent futures have support between $100 and $102, meaning it would take considerable developments to push prices below that level, according to Fawad Razaqzada at Forex.com.
Arne Lohmann Rasmussen, chief analyst at Global Risk Management in Copenhagen, called the move a buy-the-dip opportunity across crude and refined products, adding that underlying supply risks have not gone away.
Pipeline still weeks from full capacity
Roughly half of normal flows are set to return soon to the East-West pipeline, a workaround to shipments passing through Hormuz, which remains contested by Washington and Tehran. But the pipeline is not expected to reach full capacity for another six weeks.
Estimates vary for volumes moving through Hormuz, which links the Persian Gulf to global markets. US Energy Secretary Chris Wright told Fox Business that 18 million barrels of crude and products moved through the strait one day earlier this week, with a seven-day average of 11 million barrels a day, while Clarksons Research put the daily figure at about 8 million barrels.
The duration of the Iran war, launched by the US and Israel in February, and its disruption to energy flows have become increasingly hard to predict, JPMorgan Chase & Co. analysts including Natasha Kaneva wrote in a note on Thursday. According to Kaneva: "We simply don't know how to model the endgame."
Separately, Congress approved a bill giving Trump new powers to impose tariffs on countries buying Russian petroleum products, potentially including China and India. Kyiv has for months targeted Russian refineries with drone attacks, prompting Moscow to ban most diesel exports to prioritize local supplies, with officials considering extending the curb through October.
Source: Rigzone
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