New strikes on a vessel in the Strait of Hormuz and on Saudi Arabia's east-west pipeline over the weekend deepened fears for global oil supply, with traders expecting prices to rise again when markets reopen Monday. Riyadh has enough stored crude at Yanbu to sustain exports for only five to seven days, and a planned Monday meeting on shipping routes through the strait has been postponed.
New strikes hit a vessel in the Strait of Hormuz and Saudi Arabia's main oil pipeline over the weekend, and oil traders were expecting prices to rise again when markets reopen on Monday. The British maritime security agency UKMTO said a vessel was struck by a projectile while moving through the strait, causing a fire and forcing the crew to evacuate. Iran said one person was killed and four crew wounded aboard an Iranian commercial vessel struck off its coast.
Pipeline strike threatens Saudi exports
In Saudi Arabia, state media released video of damage to homes and a mosque in Jazan province from the latest cross-border attack the Houthis claimed. Southern Saudi cities have seen regular alerts since last week, culminating in drone strikes on Friday that knocked out the 1,200-km east-west pipeline that carries Middle East oil across the Arabian Peninsula, bypassing the Strait of Hormuz. The same day, the Houthis captured Perim Island, in the middle of the Bab El-Mandeb strait that controls the mouth of the Red Sea.
Traders and Saudi oil buyers told Reuters that Riyadh has enough oil stored at its Red Sea port of Yanbu to maintain exports for five to seven days if the pipeline remains shut. After that, as much as 4% of global oil supply could be jeopardized, on top of the barrels already lost to disrupted traffic through Hormuz. Saudi Arabia has not given full details on the extent of the pipeline damage, and sources gave Reuters conflicting estimates for repair time, ranging from days to weeks.
Oman talks postponed as diesel hits new record
Oil prices surged above $100 last week for the first time since July. The retail price of diesel in the United States rose Sunday to another all-time high above $6.20 a gallon. Iranian officials had said they would attend a Monday meeting with Gulf Arab states in Oman to present an agreement on future shipping routes through the strait, but Oman's foreign minister said the meeting had been postponed for the sake of regional consensus. A senior Iranian official had told Reuters the meeting would probably not yield a signed agreement to reopen the strait, and Iran's foreign minister said Tehran would not reopen Hormuz until the United States meets its demands.
Crude flows from the strait have recovered to an estimated half to two-thirds of pre-war levels, but fuel supply remains severely limited, according to Oilprice.com. Diesel just hit the $6-a-gallon average in the United States for the first time, after breaking the previous record of $5.85 the week before.
Fed rate odds climb as recession talk returns
The CME FedWatch tool showed traders pricing a 72.4% chance of an interest rate hike next week, up from 49.4% a week earlier. Goldman Sachs still estimates recession risk within 12 months at 15%, down from 30% in March, but the bank warns another major energy shock would raise the odds again. According to Goldman Sachs Chief Economist Jan Hatzius: "if we were to see another shock, we'd raise that again."
The Houthi advances and the Saudi pipeline strike pose a new dilemma for Washington, which wants to support its Saudi allies without opening another front in the war. Three sources told Reuters that Saudi Crown Prince Mohammed bin Salman phoned President Trump on Thursday asking for military aid against the Houthis, but was offered only intelligence support for now.
Sources: Commodities & Futures News, Oilprice.com
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