Crude oil prices rallied sharply on Tuesday, with a key Saudi Arabian pipeline outage and Libyan oilfield closures adding fresh supply risks to a market already strained by losses from the Iran conflict. Global benchmark Brent crude settled nearly 3% higher, trading around $109 per barrel.
West Texas Intermediate (WTI) crude climbed more than 4%, experiencing volatile intraday trading amid heightened sensitivity to developments in the Middle East and the Russia-Ukraine conflict. Diesel futures settled at a record high. Traders are now seeking clues on how long the shutdown of Saudi Arabia's East-West pipeline will last, a critical artery that was taken offline following a drone attack last week.
According to sources familiar with the matter, Saudi Aramco is deferring crude deliveries to some European buyers this month. US Energy Secretary Chris Wright stated the pipeline disruption would last "a matter of days," reiterating his view that operations could resume "fairly soon." Saudi authorities have not specified a restart timeline, while British officials have expressed concerns that the pipeline might remain largely offline for up to six weeks.
Industry research analysts noted that the outage is testing the limited flexibility left in the global oil market. "Chris Wright's comments that the East-West pipeline could resume within days rather than weeks have somewhat capped the upside, but the market places more weight on actual physical supply than verbal assurances," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. "For now, the impact of a tight physical market still outweighs any rhetoric aimed at easing supply concerns."
Meanwhile, the closure of the Hamada-Zawiya pipeline has forced Libya to shutter multiple oilfields and may trigger a declaration of force majeure on crude production. Brent futures have surged roughly 75% year-to-date, as sustained Middle East instability and the effects of the Russia-Ukraine war amplify inflationary pressures, pushing US 10-year Treasury yields to their highest levels since 2007.
"The market has been gradually pricing in the possibility of prolonged conflict since late July, and that increasingly appears to be the consensus view," noted Walt Chancellor, energy strategist at Macquarie, in a research report. Prompt Brent, the primary pricing benchmark for physical crude, broke above $130 per barrel this week for the first time since April. That spike comes as European buyers scramble for alternative supplies following the Saudi pipeline shutdown.
US Senate Majority Leader John Thune indicated a willingness to explore banning diesel exports in an effort to lower domestic prices, which pushed diesel futures to their intraday highs. However, analysts caution that such a policy could actually have the opposite effect and drive diesel prices higher. Brent for November settlement rose 2.9% to close at $108.75 per barrel, while WTI for October delivery gained 4.4% to settle at $105.83 per barrel.
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