Oil prices experienced a decline on Tuesday, following an increase of nearly $2 a barrel in the prior session. Traders are currently assessing the supply risks stemming from attacks on Saudi Arabia, juxtaposed with the potential for increased diesel supplies from Russia. US President Donald Trump stated that Russia had consented to provide diesel to international markets. His administration also temporarily eased US sanctions on Russian fuel, which were imposed to deprive Moscow of revenue for its war on Ukraine. Brent crude futures decreased by 61 cents, representing a 1.05% drop, settling at $105 per barrel. Meanwhile, US West Texas Intermediate crude futures saw a decline of 92 cents, also a 1.05% decrease, reaching $93 per barrel. Brent settled at 106.65 a barrel on Monday, marking its highest level since September 15. Oil prices have increased by over 70% this year, driven by the US conflict with Iran, which has unsettled global energy markets.
The additional supplies could alleviate the tightness in global fuel markets and mitigate some of the supply concerns that have underpinned crude prices in recent weeks. However, lawmakers from both parties in the US indicated that Trump’s agreement with Russian President Vladimir Putin seemed to contravene US law prohibiting imports of Russian energy until Moscow ceases its aggression against Ukraine. Concerns regarding the security of Gulf energy infrastructure and shipping lanes have intensified following the recent assault by Iran-aligned Houthis on Riyadh’s international airport over the weekend, alongside reports of tanker attacks in proximity to the Strait of Hormuz. The incidents posed a risk to the recovery in Middle East supplies observed in September and intensified worries regarding potential further disruptions along one of the globe’s critical energy transit routes.
Ministers from OPEC and non-OPEC countries involved in the Declaration of Cooperation reported that shipping and insurance costs have escalated to unprecedented levels, surpassing one-third of the commodity’s value and obstructing the efficient transportation of crude oil and petroleum products. Uncertainty regarding the resolution of the conflict continues to be a significant worry for market participants. JPMorgan analysts expressed uncertainty regarding the modelling of the eventual outcome, highlighting that the bank had initially presumed the US administration would refrain from surpassing specific economic thresholds at the onset of the conflict. Seven months into the conflict, numerous thresholds have been surpassed, yet a definitive exit strategy continues to be elusive.
The increasing risk of additional supply disruptions has heightened the likelihood of elevated oil prices. Daan Struyven noted that recent attacks illustrated the potential for disruptions to shipping to proliferate and escalate. Goldman Sachs has delineated a situation where oil prices may surge to $120 a barrel should there be an escalation in attacks on vessels in the Middle East. If exports return to normal, the bank anticipates prices to gravitate back toward $80 a barrel. Struyven indicated that risks associated with shipping have emerged as a significant factor influencing oil prices. Goldman Sachs anticipates significant upside potential for crude oil and projects an increase in prices for natural gas and refined products as well. Struyven noted that the supply shocks impacting petrol and fuels were more significant than those observed in the crude oil market.
