Tokyo: Oil prices rose on Wednesday as traders assessed growing threats to commercial shipping in the Strait of Hormuz and renewed attacks linked to the conflict involving Saudi Arabia and Yemen's Houthi movement. The prospect of additional Russian diesel supplies offered some potential relief to fuel markets, but uncertainty over energy shipments continued to support prices.
Brent crude futures rose 34 cents, or 0.3 per cent, to $106.03 a barrel by 0630 GMT. US West Texas Intermediate crude futures gained 28 cents, or 0.3 per cent, to $94.42 a barrel. Both benchmarks had risen by more than $1 earlier in the session before their gains narrowed.
The price increases followed reports that a container ship and a tanker had been struck by unknown projectiles in the Strait of Hormuz. The United Kingdom Maritime Trade Operations reported the incidents, raising further concerns about the safety of commercial vessels travelling through the strategic waterway.
Iranian officials told Reuters that Tehran had changed its tactics in targeting vessels in the strait. According to the officials, the new approach began around 10 days earlier and was intended, in part, to maintain pressure on global oil prices.
The officials also said Iran wanted to influence the US midterm elections scheduled for November. Their statements provide an account of Iran's reported strategy, although the full extent and future direction of the operations remain uncertain.
The Strait of Hormuz is one of the world's most important routes for international energy trade. Before the conflict, about one fifth of global oil and liquefied natural gas trade passed through the waterway. Further disruption could delay deliveries, increase shipping costs and create additional uncertainty for oil importing countries.
The latest incidents come amid escalating tensions involving Saudi Arabia and Yemen's Iran allied Houthi movement. Attacks affecting Saudi targets have increased concerns about the security of energy infrastructure and export routes across the region.
Saudi Arabia's Ministry of Energy said an administrative building belonging to state owned oil company Saudi Aramco in Dhahran, in the kingdom's Eastern Province, was targeted on the evening of Tuesday, October 13. The incident caused a limited fire, but no injuries or fatalities were reported at the building.
The incident added to security concerns surrounding Saudi Arabia's energy sector. However, the available reports did not establish that the attack had stopped oil production or interrupted the country's crude exports.
The attack also came amid reports of wider strikes affecting Saudi Arabia. The broader conflict has raised concerns about the safety of transport links and energy facilities, although the effects of individual incidents on oil production and exports need to be assessed separately.
Saudi Arabia increased its oil production significantly in September despite continuing difficulties in moving energy supplies through the region. According to the latest monthly report from the Organization of the Petroleum Exporting Countries, Saudi output rose by more than two million barrels per day to 8.372 million barrels per day.
Total production by OPEC and its partner countries, known as OPEC+, increased by about 900,000 barrels per day in September to 39.07 million barrels per day.
The figures show that production increased during September even as security risks continued to affect oil shipments. However, higher production does not guarantee that supplies can reach international buyers safely or without delays.
Another factor influencing the market is the prospect of additional diesel supplies from Russia. US President Donald Trump announced an arrangement with Russian President Vladimir Putin under which Russia would supply more than 300,000 metric tons of diesel to the United States and other markets. The announcement was accompanied by a temporary easing of US sanctions on Russian fuel.
The arrangement could provide additional fuel to markets facing supply pressures. However, the actual delivery schedule and the full volume of additional supplies remain uncertain. The extent to which the arrangement will affect international fuel prices will depend on the quantities delivered and wider market conditions.
Russia's ability to increase exports may also be limited by damage to its refining sector following Ukrainian attacks and continuing domestic fuel supply pressures. These factors could affect how much additional diesel becomes available to international buyers.
The Russian announcement has also raised questions about the wider political implications of renewed energy trade between Washington and Moscow. The Kremlin said it did not see a direct connection between the diesel arrangement and negotiations aimed at ending the war in Ukraine.
Diesel is a refined petroleum product rather than crude oil. Additional diesel supplies could ease pressure in fuel markets, but their effect on crude oil prices would depend on broader supply and demand conditions.
For oil traders, the immediate concern is whether further attacks will disrupt energy production, shipping or exports in the Middle East. At the same time, increased production and the possibility of additional fuel supplies could help limit price increases if the supplies reach the market.
Oil prices will depend on developments in the conflict, the safety of commercial shipping and the amount of additional energy supplies reaching international markets. Further attacks or prolonged shipping disruptions could increase supply concerns, while improved security and additional deliveries could ease some of the pressure.
Although oil prices rose on Wednesday, the reported incidents do not by themselves establish the extent of any new loss of global oil supply. Traders continue to weigh the risks of further disruption against signs of increased production and the possibility of additional fuel deliveries.