Oil surged past $106 a barrel on Tuesday after Saudi Arabia suspended loadings at its Red Sea port of Yanbu and cancelled some crude cargoes following a pipeline attack, while Libya halted output at three oil fields. Goldman Sachs says the escalation raises the odds of Brent breaking above $120.
Saudi pipeline halt drives the surge
Oil jumped more than $3 a barrel on Tuesday after shipping industry sources said oil loadings at Saudi Arabia's Red Sea port of Yanbu had been suspended, and Libya halted operations at three oil fields. Brent crude rose $3.49, or 3.3%, to $109.20 a barrel. U.S. West Texas Intermediate climbed $5.08, or 5.01%, to $106.46 a barrel. If the gains hold, both contracts are on track for their highest close in nearly four months.
The rally followed a Houthi attack on Saudi Arabia's East-West Pipeline on Friday that forced the kingdom, the world's largest crude exporter, to shut the route. Riyadh has told European customers that some late-September crude cargoes will be cancelled, and Saudi officials have described the pipeline closure as a precautionary measure without providing a damage assessment or an outage estimate. Energy Secretary Chris Wright told CNBC he expects a quick fix: "This will be a brief and temporary interruption," he said.
Libya adds to the squeeze
In Libya, the National Oil Corporation said operations at three oil fields were suspended after protesting members of the Petroleum Facilities Guard shut a valve on the Hamada-Zawiya crude export pipeline. The Guard warned the shutdown could be expanded if its demands are not met, and the NOC said it may declare force majeure if the valve stays closed. Separately, WTI has risen in 11 of the past 12 days, a true sign of a supply squeeze, according to Investinglive.
Traders brace for a longer outage
Saudi Arabia could exhaust crude available for export within days unless the East-West Pipeline resumes operations, according to buyers and traders. Goldman Sachs said in a note that repair estimates range from "very soon" to eight weeks, and that the attacks mark an escalation that increases the probability of Brent rising above $120 a barrel. Commodity vessel traffic through the Strait of Hormuz, meanwhile, dropped to four on Monday, down from 10 a day earlier, according to preliminary data from Kpler.
Sources: Reuters via Yahoo Finance, CNBC, Investinglive
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