The key issue for oil is whether the Houthi claim turns into confirmed lost supply. For now, the move reflects headline risk on a refinery Saudi Arabia hasn’t confirmed was hit, so prices are exposed to a reversal if the damage proves limited, or a sharper rally if refining capacity is knocked out. A hit to a facility of this size would matter more for refined products such as diesel than for crude, which fits the shipping and refining strains UBS and the RBNZ flagged this week. OPEC+ holding steady on Sunday, with most core members already below target, offers little cushion if supply is disrupted. Higher crude also feeds straight into the inflation concerns voiced today by RBA Governor Bullock (here and again here).
Oil clawed back some of Tuesday’s losses on a Houthi claim of a strike on Saudi Arabia’s biggest refinery, but until Riyadh confirms the damage, the market is pricing risk, not lost barrels.
Summary:
- Brent rose around 1.3% to around $115 and WTI around 1.2% to around $101 as of 01:40 GMT, according to Reuters.
- Yemen’s Houthis said they struck Saudi Arabia’s largest refinery, a 550,000 bpd facility. Saudi authorities did not immediately confirm the strike.
- Reuters said the attack renewed concerns about Middle East supply risks. Prices had fallen nearly $2 on Tuesday as regional talks eased worries.
- A Reuters poll pointed to a build of about 15,000 barrels in US crude inventories for the week ended October 23.
- OPEC+ is expected to keep December output targets steady on Sunday, sources told Reuters, with most core members producing below target.
- Russian crude exports from Baltic and Black Sea ports could fall next month as domestic refiners lift diesel output, traders said.
Oil prices rose in Asian trading on Wednesday after Yemen’s Houthis said they had struck Saudi Arabia’s largest oil refinery with a missile, a move Reuters said renewed concerns over Middle East supply risks linked to the conflict with Iran and its proxies.
Brent crude futures rose around 1.3% to around $115 a barrel as of 01:40 GMT, while US West Texas Intermediate crude gained around 1.2% to around $101, according to Reuters. The move recovered part of Tuesday’s decline of nearly $2, when talks in the Middle East had helped ease supply worries.
The Iran-aligned Houthis said on Tuesday they had hit the 550,000 barrel per day facility, intensifying their attacks on Saudi Arabia, the world’s biggest crude exporter and second-largest producer. Saudi authorities did not immediately confirm the strike, and there was no immediate information on any damage or disruption to operations. Reuters framed the price rise as a reaction to the attack reigniting supply concerns.
The gains came despite expectations of a small build in US crude inventories. A Reuters poll of eight analysts pointed to a rise of about 15,000 barrels in US crude stockpiles in the week ended October 23, a minimal change ahead of official data.
Adding to the risk premium is speculation in markets that Israel could renew strikes on Iran following Tuesday’s general election. Exit polls suggested Prime Minister Benjamin Netanyahu’s bloc fell well short of a 61-seat majority in most surveys, although official results are not due until November 4. Some commentators have suggested that an electoral setback could raise the risk of military escalation, and Israeli media reported before the vote that a plan to strike Iran had been discussed at senior levels. Israel’s defence minister dismissed reports of disagreement over such a plan as baseless and said there was no intention to attack Iran before the election, and there has been no official indication of imminent action. The chatter nonetheless helps explain why traders remain quick to price in Middle East supply risk.
Attention is also turning to OPEC+. The group is expected to keep its December output targets unchanged when it meets on Sunday, three people with knowledge of the matter told Reuters, in line with market expectations. Production in most of the seven core members, Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman, is running below their targets, which limits how much a decision on quotas changes actual supply.
Russian flows are another factor. Traders told Reuters that crude exports from Russia’s Baltic and Black Sea ports could fall next month as domestic refiners increase diesel production following a deal with Washington earlier this month.
The key question for prices is whether the strike causes any lasting loss of refining capacity. Until Saudi Arabia confirms the extent of any damage, the price reaction reflects risk rather than confirmed lost supply, leaving crude sensitive to further headlines from the region, Sunday’s OPEC+ meeting and this week’s US inventory data.
This article was written by Eamonn Sheridan at investinglive.com.