Oil prices extended their climb Tuesday after Houthi militants renewed strikes on Saudi Arabia and Libya's state oil firm suspended output at three fields. Brent crude traded above $108 a barrel and U.S. crude above $104, with a shuttered Saudi pipeline and a Libyan force-majeure warning adding to a market already strained by the Iran-U.S. conflict in the Strait of Hormuz.
Brent crude futures gained 2.3% to $108.15 a barrel by 10:35 a.m. ET Tuesday, while West Texas Intermediate rose 2.6% to $104.06. Prices have surged about 20% this month as fighting has sharply escalated in the Persian Gulf.
Saudi pipeline outage tightens supply
Saudi Arabia shut its East-West pipeline as a precautionary measure after a drone attack launched from Iraq damaged it last week, and Riyadh has not given a damage assessment or timeline for restoring flows. The pipeline, which can carry 7 million barrels per day and normally lets Saudi Arabia redirect exports to the Red Sea, could stay offline for three to five weeks while crews repair a damaged pumping station, according to two regional officials cited by the Associated Press. Analysts estimate the outage could disrupt an additional 4% to 5% of global supplies, after an average of 2.6 million to 4 million barrels a day flowed through the line since late August. Houthi militants in Yemen, meanwhile, launched drones and ballistic missiles at Khamis Mushait, Abha and Taif this week, and at least two tankers have come under attack in the Strait of Hormuz since Saturday, per the UK Maritime Trade Operations Centre. Goldman Sachs strategist Yulia Zhestkova Grigsby said "The attacks on oil infrastructure mark a meaningful escalation of the conflict" and could push Brent past $120.
Libya force majeure warning adds pressure
Libya's National Oil Corporation suspended operations at three fields after security guards closed a valve on the Hamada-Zawiya crude pipeline, and the NOC may declare force majeure if the closure continues. Traders say a prolonged Saudi pipeline shutdown could cut as much as 4% of global oil supply. Talks between Iran and Gulf states in Oman over the Strait of Hormuz were delayed from Monday, with Tehran suggesting the postponement came at Riyadh's request. The strait supplied about a fifth of the world's oil before the U.S.-Iran conflict broke out in late February, but flows have since slowed to a fraction of that level.
China pays record prices for crude
The supply strain is showing up most starkly in China, where yuan-priced crude futures rallied to as much as 929.4 yuan, or $138.50 a barrel, on the Shanghai International Energy Exchange — the highest level since the contract launched in 2018. Oman and Murban futures, similar-quality benchmarks the Chinese contract tends to track, last traded above $126 a barrel. Researcher Chaos Ternary Futures Co. said Chinese refiners are currently the marginal buyers of crude oil, paying high premiums and freight rates that keep Shanghai prices strong against overseas benchmarks. The firm added that only a recession or a de-escalation in geopolitics is likely to cool the market.
Sources: CNBC, Investing.com, Rigzone
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