Oil prices rose to four-month highs with the shutdown of Saudi Arabia's East-West Pipeline and Houthi threats to shipping in the Red Sea keeping the market on edge about supply out of the Middle East.
Brent crude futures rose 2.9% to $108.75 a barrel Tuesday, while West Texas Intermediate gained 4.4% to $105.83 a barrel, their highest closes since May 19.
Saudi Arabia is trying to resume partial operations on the East-West Pipeline within days, though damaged pumping stations could take six to eight weeks to fully repair, The Wall Street Journal reported. The 750-mile pipeline can carry as much as 7 million barrels a day from Saudi Arabia's oil-producing region in the east to the Red Sea port of Yanbu, allowing crude exports to bypass the Strait of Hormuz.
The outage comes as the Houthis strengthen their position around another key oil-shipping chokepoint. The militants seized Perim Island in the Bab al-Mandeb Strait over the weekend after taking the nearby port of Mokha, further threatening oil flows through the Red Sea corridor.
"We're compromised on three fronts," said Tracy Shuchart, senior economist at NinjaTrader Group.
President Trump's assertion Monday that Ukraine and Russia had agreed not to attack each other's energy infrastructure didn't work out with overnight strikes reported. U.S. retail diesel prices rose to a fresh record high around $6.27 a gallon Tuesday, according to the AAA. Diesel futures traded on the New York Mercantile Exchange rose 6.1% to a record high $5.262 a gallon.
"We've got a product market problem, we've got an oil market problem, and this doesn't look to be rectified anytime soon," Shuchart said.
Adding to upward pressure on oil was a Reuters report, citing shipping sources, that Saudi Arabia has suspended oil loadings at the port of Yanbu, and reports that Libya shut in production at three sites after guards closed a valve on a pipeline.
"Crude oil remains supported by a particularly strong combination of geopolitical risks and physical supply disruptions," XS.com senior market analyst Antonio Di Giacomo said in a note. "A sustained move in Brent above $110 per barrel could open a new phase of upward pressure on energy prices and reinforce inflation concerns worldwide."
Some of the factors that have helped cushion the global oil market against supply disruptions are starting to weaken, Commonwealth Bank of Australia's Vivek Dhar said in a note. China's crude imports are edging higher, while additional non-OPEC+ supply outside the Middle East is unlikely to come online until 2027, he said.
Dhar said it remains difficult to predict when oil flows through the Strait of Hormuz will recover materially given elevated U.S.-Iran tensions. CBA's lower estimate that global crude and refined-product inventories provide only five to 11 weeks of cover is becoming increasingly likely, he said.
Saudi Arabia can temporarily maintain crude shipments from Yanbu by drawing on oil already stored at the Red Sea port. Rystad Energy analyst Janiv Shah estimates those inventories could cover around three days of exports, with a range of two to six days depending on how much crude was stored when the pipeline was shut. Saudi Arabia could extend that window by at least another week by drawing on crude stored in Egypt, The Wall Street Journal reported.
Saudi crude loadings from Yanbu had risen above 4 million barrels a day between April and June as the kingdom diverted more shipments away from Hormuz, before falling to 1.1 million barrels a day in August as Houthi attacks increased risks to Red Sea shipping, according to LSEG data.
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