| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 108.37 | 11.37 | 89.85 | 91.59 | 85.36 |
| US WTI ($/b) | 103.61 | 12.13 | 83.93 | 87.13 | 80.08 |
| ICE Gasoil ($/MT) | 1,519.50 | 59.25 | 1,266.17 | 1,167.76 | 1,028.70 |
| Jet CIF NWE ($/MT) | 1,575.73 | 170.41 | 1,283.72 | 1,217.79 | 1,117.74 |
Brent reached a high of 110 \$/b last week and is over 107 \$/b this morning. There has been a lot going on, but the key developments of recent days have concerned risks related to Saudi exports via the East-West pipeline to the Red Sea. Saudi Arabia’s production for August was announced to have been only a little over 6 mb/d. The country’s domestic demand is around half of this, suggesting about 3 mb/d was being exported in August which is well below the 6 to 7 mb/d capacity of the Saudi pipeline to the Red Sea that allows exports avoiding the Strait of Hormuz. This news made clear the disruptive effect of Houthi threats to Saudi cargoes exiting the Red Sea through the Bab al-Mandab Strait and sent oil higher in the middle of last week. On top of that the Houthis made significant territorial gains last week and the pipeline was put out of action entirely following a strike launched from Iranian backed groups in Iraq. Saudi’s Ministry of Energy said on X this was shut down as a precautionary measure while teams assess its safety, in any case there has not been a further announcement of when it will reopen.
The lingering question is if the latest developments could lead to an expanding regional war. The Houthis had kept relatively quiet until July when Saudi Arabia attacked the main airport in Houthi controlled territory due to the arrival of an Iranian aircraft. Since then, the Houthis have disrupted Saudi shipping, but not that of other countries and this could put off anyone coming to the aid of Saudi Arabia, lest their vessels become targets also. The US has apparently turned down requests for help from Saudi Arabia, presumably for that precise reason. Saudi Arabia has launched a waves of air strikes against the Houthis in support of the internationally recognised government forces in Yemen, that are fighting to contain the Houthis, but has held off from launching strikes on Iraq in retaliation for the attack on the pipeline, to give the Iraqi authorities time to investigate. Early indications from the investigation appear significant. Launch sites have reportedly been identified close to the Iranian border, while President Trump stated that Iran was "probably" responsible for the attack. Given the recent attacks on US vessels and military bases, markets remain alert to the possibility of a wider response from Washington. Reports overnight that an Iranian linked vessel was struck have only added to concerns that the conflict could continue to escalate.
In terms of the diplomatic efforts in the war, the fact that the US is reluctant to get involved militarily in this fresh front with Yemen, leaving Saudi Arabia and others to deal with the problem, increases the pressure to find diplomatic solutions and for Saudi Arabia especially, the reopening of the Strait of Hormuz has become more urgent. The talks between Oman and Iran on the Strait of Hormuz are apparently close to being completed, although they have seemed that way for a while, but a meeting that had been scheduled today between Iran, Oman and other countries in the region, has now been postponed. It remains difficult to tell how close a diplomatic solution might be.
The key question is how bad the damage to the Saudi pipeline is, and there is not much clear information on that yet. We do know it has not yet restarted. If that is out of action for an extended period it will put more upward pressure on oil. We have already seen diesel and jet fuel around 200 \$/b again. Brent has been up to 110 \$/b so we could retest levels seen earlier in the war over 120 \$/b.
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