Oil declines after diplomatic move to curb Houthi attacks
The price of a barrel of Kuwaiti crude oil fell by $5.24 to reach $114.94 per barrel in trading yesterday, compared to $120.18 in last Thursday’s trading, according to the price announced by the Kuwait Petroleum Corporation.
In global markets, oil prices declined yesterday after China, at Saudi Arabia’s request, asked Iran to curb Houthi attacks on Saudi oil infrastructure. These attacks have created a second bottleneck in energy transport routes in the Middle East.
Oil prices have risen steadily over the past few weeks amid resumed mutual attacks between the United States and Iran, as well as intensified military activities by Iran-aligned Houthis.
These developments, combined with global refining capacity issues, have driven up prices of major fuels such as diesel in key markets.
Data from the American Automobile Association (AAA) indicates that the U.S. retail price for diesel has currently reached $6.45 per gallon, a record high, while the average retail gasoline price stands at $4.47 per gallon, at a time of year when gasoline prices typically fall.
IIR Energy, a firm specializing in refining data, said yesterday that U.S. operating refining capacity is expected to drop by 371,000 barrels per day next week.
Phil Flynn, senior analyst at Price Futures Group, stated that “the problem right now is not supply; it is refining.”
Despite reports of Chinese intervention, analysts say forecasts for the coming months remain uncertain. JPMorgan Chase said last Thursday that it lacks a clear fundamental outlook for oil markets for the first time since the start of the U.S.-Israeli war on Iran in February.
The Strait of Hormuz remains effectively closed. Preliminary shipping data released today showed that only four cargo ships transited the strait yesterday, significantly below the 10-day average of approximately 16 ships.
Oil prices rose this week to their highest levels in about four months after sources reported the suspension of crude oil shipments at Saudi Arabia’s Yanbu port on the Red Sea, and Riyadh’s cancellation of some shipments bound for Europe following damage to the East-West pipeline from an attack last week.
Bloomberg News, citing informed sources, reported that Saudi Aramco informed at least two of its European refining clients that they would receive no crude oil next month following the attack on Saudi Arabia’s main pipeline to the Red Sea.
Saudi Arabia and the Iran-aligned Houthi group in Yemen exchanged attacks across their border last Thursday, while Yemenis fled to boats in the Red Sea to escape the fighting. The widening scope of the war in the Middle East has posed new threats to supply.
Satellite imagery and three sources in the oil sector revealed that three pumping stations serving Saudi Arabia’s East-West pipeline were damaged in last week’s attack, increasing the number of affected stations by one from previous assessments. The timeline for repairs remains unclear.
Saudi Arabia is aiming to restore approximately half of the East-West oil pipeline’s capacity within days, although sources consulted by Reuters provided varying estimates regarding the time required to reopen the line and return crude oil flows to normal levels.
Priyanka Sachdeva, head of market analytics at Philip Nova, said, “The key question is whether actual flows can return to normal and what the likely timeline for that would be. If we see a sustained improvement in traffic through the Strait of Hormuz, some geopolitical risk premiums could decline further.”
The United States and Iran have held no talks to end the war since the collapse of a temporary deal reached in June within weeks. The U.S. State Department said that meetings of the UN General Assembly next week will feature discussions on the war, and an Iranian delegation will be able to attend.
Nevertheless, oil prices remain above $100 a barrel, and analysts say markets are waiting for clear signs of improved supplies.
However, oil transit through the region remains risky. State media reported yesterday that the Iranian Revolutionary Guard Navy said an oil tanker flying the Togolese flag was targeted while attempting to “illegally pass” through the “Hormuz” strait.
