While crude supply disruptions remain the market's main concern, tightening diesel supplies have emerged as another source of pressure as disruptions to energy infrastructure in the Middle East and Russia constrain fuel availability.
European gasoil futures LGOc1, a benchmark for diesel prices, settled at a record high on Tuesday. U.S. ultra-low sulfur diesel futures HOc1 also settled at a record high.
A Ukrainian drone attack damaged a refinery in the Russian city of Yaroslavl, causing a fire that was later extinguished, regional Governor Mikhail Yevrayev said on Thursday.
Crude prices ease as supply disruption fears moderate
Oil prices settled about 1% lower on Thursday, but stayed above $100 a barrel, as investors weighed the disruption from strikes by Saudi Arabia and Yemen's Iran-backed Houthis against reports that additional Saudi crude barrels could reach global markets and ease supply concerns.
Saudi Arabia and Yemen's Iran-backed Houthis exchanged fresh strikes across their border on Thursday, with the spread of the Middle East war to Yemen and Saudi Arabia threatening to worsen the global energy supply shortage caused since the United States and Israel attacked Iran in February.
Brent crude futures LCOc1 closed down $1.01, or 0.95%, at $104.82 a barrel, while U.S. West Texas Intermediate CLc1 futures fell 52 cents, or 0.5%, to $101.91 a barrel. Both benchmarks had fallen about 3% on Wednesday.
Brent had fallen over $3 earlier in the session to its lowest since September 10, while WTI also fell over $3 to its lowest since September 11 after reports that Saudi Arabia was offering more crude cargoes to Asian refiners through ship-to-ship transfers off Oman's Sohar port. This will offset some of the disruption caused by attacks on the East-West pipeline to the Red Sea.
Saudi Arabia was also seeking to return about half the capacity of its East-West oil pipeline within days after the link was halted last week following drone attacks, Bloomberg reported.
Oil prices had climbed to around four-month highs this week after shipping industry sources said crude loadings at Saudi Arabia's Red Sea export hub of Yanbu had been suspended and Riyadh had canceled some cargo deliveries to European customers. The East-West pipeline supplies Yanbu.
Traders said a prolonged closure of the pipeline could cut off as much as 4% of global oil supply. Saudi Arabia has not said when operations might resume, but Wright told CNBC on Tuesday that crude should be flowing through the pipeline within days.
Three pumping stations serving the East-West pipeline were damaged in an attack last week, and the repair timeline remained unclear, according to assessments from three oil and security sources.
"Oil prices extended the previous session's losses on Thursday as concerns over Middle East supply disruptions eased to some extent," said Christopher Tahir, senior market strategist at trading platform Exness, citing increased crude flows through additional offshore loadings via Oman and efforts to restore the East-West pipeline.
"Nevertheless, the physical market remains tight, limiting the scope for further declines. Tanker traffic through the Strait of Hormuz continues to fall, while tensions between Saudi Arabia and the Houthis leave Red Sea shipping and regional energy infrastructure exposed to renewed disruption," Tahir added.
Singapore's DBS Bank said its base-case scenario for the fourth quarter assumes tensions between the U.S. and Iran will ease, allowing Brent to stabilize in an $85 to $95 a barrel range.
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