Oil fluctuated in jittery trading, as Saudi Arabia cut prices of its benchmark grade to Asia, the kingdom’s state producer warned about the risk of low stockpiles and as fighting in Yemen intensified.
Brent edged up above $102 a barrel, after earlier losing as much as 1.6%, while West Texas Intermediate was near $90. Futures whipsawed as people familiar with the matter said Saudi Arabia’s vital East-West pipeline is operating normally, after the AFP earlier reported that it had shut following a new attack.
Crude has rallied strongly this year after the US and Israel attacked Iran, igniting months of conflict and fanning inflation. Still, flows of oil have been recovering toward pre-war levels in recent weeks, although shipments of products remain constrained. In a bid to tame prices, the Group of Seven and its partners last week announced a further release of emergency stockpiles.
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Saudi Aramco lowered the price of Arab Light to buyers in Asia to $5 a barrel below a regional benchmark for November as Persian Gulf producers race for market share with flows through the Strait of Hormuz increasing. That’s a six-year low and compares with a discount of $2 a barrel for this month. Traders and refiners had expected a $5 rise from October, a Bloomberg survey shows.
In Yemen, the Riyadh-backed government launched a full-scale military push to recapture all areas under the control of the Houthis, who are supported by Iran. The militant group has been fighting their domestic rivals, as well as targeting vital energy infrastructure in Saudi Arabia.
“The risk premium has not disappeared simply because headline crude exports are recovering,” said Emily Ashford, head of energy research at Standard Chartered Plc. “The Houthi-Saudi front has its own dynamics and its own escalation risks, which continue to put Saudi infrastructure and alternative export routes directly in the firing line.”
Energy markets will remain extremely sensitive to any suggestion that the East-West corridor could be disrupted again, she said.
Oil continues to flow through the Saudi East-West pipeline, the people familiar with the matter said. The conduit was halted after a fresh strike on a pumping station along the route over the weekend, the AFP reported, citing a person in the kingdom’s energy sector that it didn’t identify.
The oil stockpiles that cushion the world from supply shocks have become “scarily thin,” putting markets at risk of worsening unless Hormuz reopens, Saudi Aramco Chief Executive Officer Amin Nasser said at the Energy Intelligence Forum in London on Monday. “While the squeeze on crude is serious, refined fuel prices have risen even more sharply.”
Saudi Price Cuts
Saudi Aramco’s so-called official selling prices — which set costs for crude sold under long-term contracts to refiners — have been exceptionally volatile since the outbreak of the Iran war in February. In the initial stages of the conflict, when passages through the Strait of Hormuz collapsed, the OSP for sales to Asia was set at a record premium of $19.50 a barrel.
While flows through the waterway have since picked up, risks to shipping remain acute, with a flurry of attacks in recent days. Among the latest, the UK Maritime Trade Operations said a tanker transiting the Hormuz was instructed by Iran on Monday to turn back or it would be targeted. A separate incident was also reported off Yemen’s Al Mukha in the Red Sea.
In Yemen, key to the fighting will be control over the country’s strategic western coastline toward the Bab el-Mandeb chokepoint. A recent push by the Houthis saw them take control of the area, raising risks for Saudi shipping along a route that’s been a key workaround to shipments via Hormuz.
“Emergency releases and the Saudi price cut, which I mostly read as an attempt to build market share, are weighing on prices,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank. “It does not change the fact that shipments through the Strait of Hormuz has picked up but remains volatile and exposed to disruptions.”
Elsewhere, major OPEC+ nations agreed at the weekend to keep production quotas unchanged next month, in line with an existing output roadmap. The Iran war has blunted the impact of the group’s decisions because supply in some members remains below levels pumped before the conflict.
Stronger-than-expected flows and the emergency releases are weighing on prices, but supply risks remain elevated, according to Soni Kumari, a commodities strategist at ANZ Group Holdings Ltd., who cited Aramco’s OSP move among factors. Prices are seen between $95 and $100, with escalation potentially pushing them back toward a recent high of $110, she said.
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