Oil prices edge higher as attacks, pipeline outage deepen Saudi supply concerns

Oil prices edged higher on Tuesday after attacks on Saudi Arabian energy infrastructure left the kingdom's East-West Pipeline offline, raising fears that damage to energy infrastructure and transport routes could take longer to repair. 

Brent crude futures were up 6 cents at US$105.74 a barrel at 1301 GMT after hitting a session high of US$108.43. US West Texas Intermediate futures were up 27 cents at US$101.66 a barrel after rising as far as US$104.21 earlier.

Concerns over oil supplies intensified after Iran-backed Houthi forces in Yemen launched fresh attacks on Saudi Arabia on Monday, while Gulf Arab states postponed planned discussions with Iran. 

"Fresh attacks by the Houthis targeting Saudi Arabia may be influencing oil market investors' expectations about the severity and duration of the conflict," said Hamad Hussain, senior climate and commodities economist at Capital Economics.

The Houthis said on Monday they fired dozens of missiles and drones at a military air base in Khamis Mushait in southern Saudi Arabia, targeting aircraft hangars, radar systems, runways and ammunition depots in retaliation for Saudi airstrikes in Yemen. 

This followed attacks on Friday on Saudi Arabia, which Riyadh blamed on Iranian-backed fighters in Iraq, that disrupted the country's East-West Pipeline, which allows oil exports to bypass the blockaded Strait of Hormuz, through which about a fifth of global oil supplies passed before the US-Iran war.

Saudi Arabia could exhaust crude available for export within days unless the East-West Pipeline resumes operations, according to buyers and traders. The pipeline strike threatened up to 4 percent of global oil supply.

"The recent attack may be more severe and could threaten the remaining 2 mb/d of recent Yanbu exports, with the latest repair assessments ranging from 'very soon' to eight weeks," Goldman Sachs said in a note. 

The attacks on oil infrastructure marked a meaningful escalation of the conflict and increased the probability of Brent rising above US$120 a barrel, Goldman Sachs said, citing a scenario in which average Gulf oil output in 2027 remains 4 million barrels per day below pre-war levels.

Prices eased from earlier highs after Egyptian President Abdel Fattah al-Sisi and Saudi Crown Prince Mohammed bin Salman stressed the need to ensure freedom and security of navigation in the Bab el-Mandeb Strait and the Red Sea during talks.

Commodity vessel traffic through the Strait of Hormuz dropped to four on Monday, down from 10 a day earlier, preliminary data from Kpler showed on Tuesday.

"In the absence of an adjustment in demand or greater oil flows through the Strait of Hormuz, several weeks of the East-West Pipeline being closed could lift Brent crude prices towards US$130 per barrel," Hussain said.

Oman's Maritime Security Centre said on Tuesday that the Panama-flagged oil tanker 'El Gaia' was being towed to an Omani port after a fire broke out in its engine room following an attack.

Separately, half of Russia's six top diesel-producing refineries were forced to significantly cut back or completely halt output in September due to damage sustained in drone attacks, according to Reuters calculations based on data from fuel market participants.

Reuters

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