Brent crude prices rose more than 2% on Monday as fresh attacks on Saudi Arabia and vessels in the Gulf added to supply concerns after the shutdown of a key Saudi oil pipeline.
Brent crude futures rose $108.3, or 3.19%, to $107.51 a barrel as of 2313 GMT, according to Reuters. West Texas Intermediate crude futures rose $2.27, or 2.27%, to $102.32 a barrel. Prices had initially climbed more than 3% at market open.The rise came after oil prices gained 8% last week, pushing Brent above $100 a barrel for the first time since July.
Saudi shuts key pipeline increasing supply risks
Saudi Arabia shut its East-West oil pipeline after a drone strike damaged the key crude oil route. The pipeline has a capacity of about 7 million barrels per day and carries oil from Saudi Arabia’s production areas near the Persian Gulf to export terminals on the Red Sea, according to CNBC.
The pipeline has become particularly important as tensions around the Strait of Hormuz have disrupted energy flows. It allows Saudi Arabia, the world’s largest oil exporter, to redirect crude exports away from Hormuz.
Reuters said the loss of the pipeline threatens up to 4% of global oil supply. Saudi Arabia has not disclosed the extent of the damage or how long the pipeline will remain shut.
The duration of the shutdown is now a major focus for oil markets. “It all boils down to the duration,” said June Goh, senior oil market analyst at Sparta Commodities SA to Bloomberg.
Goh said the impact could be limited if flows resume quickly because inventories at Yanbu, at the western end of the pipeline, could be used. A prolonged shutdown, however, could force Saudi Arabia to cut output, according to Bloomberg.
Attacks add to concerns over key oil routes
Supply concerns have also increased around the region’s major maritime chokepoints. Saudi state media released footage showing damage to homes and a mosque in the southern Jazan province following what it said was a Houthi attack. The Houthis also said they had struck a Saudi military base in a neighbouring province, Reuters reported.
A vessel in the Strait of Hormuz was hit by a projectile on Sunday, causing a fire and forcing its crew to evacuate, according to the United Kingdom Maritime Trade Operations agency. Iran separately said one person was killed and four crew members were wounded after a commercial vessel was struck off its coast.
The Houthis have also reached the strategic Perim Island near the Bab el-Mandeb Strait, according to CNBC. The waterway connects the southern Red Sea to global markets and has recently carried about 4% to 5% of global oil supply.
Greater control over Bab el-Mandeb could give the Iran-aligned group another route through which shipping and energy flows could face disruption.
Hormuz talks postponed
Diplomatic efforts to ease tensions around the Strait of Hormuz have also faced a setback. A meeting between Iran and several Gulf countries, scheduled for Monday in Oman, was postponed, Oman’s Foreign Minister Badr Albusaidi said.
“In the interests of consensus the regional meeting set for tomorrow in Salalah has been postponed,” Oman’s Foreign Minister Badr Albusaidi said Sunday in a social media post. “We remain committed to fostering dialogue that supports stability and lasting cooperation in our region.”
Bahrain had earlier said it would not participate in the proposed talks, while reports indicated Saudi Arabia also had concerns about a plan for a temporary shipping corridor through Hormuz.
Markets watch how long disruptions last
Oil markets are now focused on whether Saudi Arabia can restore the East-West pipeline quickly and whether tensions around Hormuz and Bab el-Mandeb ease.
Brent crude has rallied sharply this year as the US-Iran conflict has spread across the region and disrupted exports and shipping. According to Bloomberg, crude has gained 77% this year.
The prolonged crisis is also raising concerns about inflation as higher crude prices push up the cost of gasoline, diesel, transportation and other petroleum products.
For agricultural markets and agribusiness, sustained crude prices above $100 a barrel could increase fuel, freight and export logistics costs, adding another layer of pressure to global commodity markets.