Oil prices spiked on Tuesday, climbing back toward recent highs as headlines from the Middle East — in particular, Saudi Arabia — intensified growing pressure on the physical market.
Futures on Brent crude (BZ=F), the international benchmark, picked up more than $2.80 to cross back over $108.50 a barrel and approach the $109 mark seen on Monday. Meanwhile, those on US benchmark WTI crude (CL=F) jumped by roughly $3.50 to trade above $104.50.
Worries about oil exports from the Persian Gulf continued to grow on Tuesday, with Saudi Arabia in focus as market watchers attempt to assess damage to the kingdom’s oil infrastructure, critical to moving oil out of the Persian Gulf while the Strait of Hormuz remains wracked by the US-Iran conflict.
Saudi Arabia has faced a series of attacks on critical energy infrastructure from the Yemeni Houthi militia group and other Iran-backed proxy forces operating in Iraq, the most pressing of those being strikes that over the weekend forced Saudi authorities to shutter the kingdom’s East-West pipeline.
The East-West line carries oil to the port of Yanbu on the Red Sea, where it is loaded onto tankers that can take oil south through the Bab el-Mandeb Strait, which runs along Yemen, or north to the Suez Canal and the adjacent SUMED pipeline to the Mediterranean Sea.
With a capacity of roughly 7 million barrels per day (bpd), the pipeline has become the main driver of the recovery in Persian Gulf oil exports to roughly 70% of prewar levels. The latest disruption helped catalyze the move in oil prices back above $100 per barrel.
“The Red Sea is now a hot war zone,” Rabobank strategists led by Michael Every wrote to clients on Tuesday. “Those flows are not coming back in full, and more importantly, rebuilding a pipeline is not the same as restarting.”
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Saudi exports have largely recovered to their June levels of roughly 5 million bpd even as loadings at Yanbu have recently dropped, per Goldman Sachs. But that data was tempered on Tuesday by news that the kingdom has reportedly told European buyers some September cargo loadings will be canceled, per Reuters.
The Houthis have managed in the past week to take control of several cities and a growing swath of territory in Saudi Arabia, threatening to disrupt the Saudi oil trade even further. The militia group has said it will blockade attempts by any vessels carrying Saudi oil to transit the Bab el-Mandeb Strait.
To the east, along the Strait of Hormuz — which was responsible for roughly 15 million bpd of oil flows before the war — the US and Iran conflict has continued, with the path toward a resolution no clearer for markets. President Trump on Monday said Iran’s government “wants to make a deal, quickly and badly,” yet those comments came after a planned meeting between Tehran and leaders of other Gulf nations was indefinitely postponed on Sunday.
