U.S. oil prices soared past $106 a barrel on Tuesday, fueled by Saudi Arabia’s reported cancellation of crude cargoes after a drone attack forced the closure of its key East-West pipeline. This geopolitical tension, coupled with disruptions in Libya and ongoing strikes in the Persian Gulf, is driving oil prices up more than 20% this month.
Analysts warn of further price increases, with Brent crude potentially exceeding $120, as the conflict escalates and threatens vital shipping lanes.
Crude oil prices surged on Tuesday, with U.S. benchmarks topping $106 per barrel, as reports emerged of Saudi Arabia canceling some crude shipments following a drone attack that forced the closure of its vital East-West pipeline.
Brent crude gains on fresh Houthi strikes on Saudi Arabia
U.S. West Texas Intermediate (WTI) crude futures climbed 4.4% to settle at $105.83 a barrel, marking its highest closing price since May 19. The international benchmark, Brent crude, also saw a significant jump, advancing 2.9% to end the trading day at $108.75 per barrel. These gains contribute to a more than 20% surge in oil prices this month, driven by escalating conflict in the Persian Gulf.
Trade sources informed Reuters that Saudi Arabia notified its European customers about the cancellation of some crude oil deliveries scheduled for September. The Saudi government has characterized the closure of the East-West pipeline, which has a capacity of 7 million barrels per day, as a "precautionary measure." However, they have yet to release a damage assessment or provide an estimated timeline for the pipeline's operational restart. The shutdown occurred after the pipeline sustained damage from a drone attack originating from Iraq.
Energy Secretary Chris Wright expressed optimism in a CNBC interview, suggesting that the pipeline is expected to resume operations within days, calling the interruption "brief and temporary." This development comes as Saudi Arabia has been rerouting crude oil exports through the pipeline to the Red Sea, navigating the ongoing U.S.-Iran tensions over the Strait of Hormuz.
Goldman Sachs senior commodity strategist Yulia Zhestkova Grigsby noted in a recent report that the attacks on oil infrastructure represent a "meaningful escalation of the conflict" and increase the likelihood of their price upside scenario, potentially pushing Brent crude above $120.
Adding to the global energy market's volatility, operations were suspended at two oilfields and a pumping station in Libya due to ongoing protests, according to Reuters. Meanwhile, Iran-backed Houthi militants in Yemen have continued their strikes against Saudi Arabia, launching drones and ballistic missiles at cities including Khamis Mushait, Abha, and Taif.
The security situation in the Strait of Hormuz remains precarious, with at least two tankers reportedly coming under attack since Saturday. U.S. Central Command refuted claims by Iran's Revolutionary Guard that the Panamanian-flagged oil tanker El Gaia struck a naval mine, asserting instead that the vessel was hit by an Iranian missile last month, calling the IRGC's claim another instance of their "lies and intimidation attempts."
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