DTN Oil Update

Karim Bastati
DTN Analyst

VIENNA (DTN) -- Oil futures jumped Monday morning after drone strikes on Friday forced shut Saudi Arabia's East-West pipeline, which transported 4 million bpd of crude oil to export terminals at the Red Sea, bypassing Iran's blockade of the Strait of Hormuz.

By 7:53 a.m. EDT, ICE Brent for November delivery was up $3.86 to trade near $108.47 bbl, and NYMEX WTI for October delivery rose $3.49 to $103.54 bbl.

Downstream, NYMEX ULSD for October delivery advanced $0.1071 to $5.0664 gallon, and front-month RBOB futures soared $0.1355 to $3.4427 gallon.

The U.S. Dollar Index jumped 0.46 points to 99.57 against a basket of foreign currencies.

Exports from Saudi Arabia's Red Sea port of Yanbu continued Monday as crude was being drawn from storage tanks. The port's maximum storage capacity of 35 million bbl would allow exports to continue at the current pace for around nine days. Tanks, however, are unlikely to be filled to the brim, shortening this already terse time window.

Riyadh has not yet commented on how long it expects the pipeline to be shut for repairs, calling the shutdown "temporary" and a "precautionary measure". Reports suggested the pipeline was struck at several points along its route, and satellite images published over the weekend revealed extensive damage to at least two pump stations.

Simultaneously, Houthi rebels on Friday took control of vital areas in and along Bab el-Mandeb, the waterway connecting the Red Sea to the Indian Ocean. The Iran-allied Yemeni militia has since July, when it declared a blockade of Saudi oil exports, launched repeated attacks on Saudi tankers, forcing shipments from Yanbu to Asia on a long and expensive detour around Africa. Damages to the pipeline feeding the port are now jeopardizing even these flows, and full Houthi control over Bab el-Mandeb could keep buyers east of the Suez Canal choked off from most of this vital supply source even in the event of a swift restart of the East-West pipeline.

The oil supply disruption from the Persian Gulf, meanwhile, showed no signs of easing. Multiple tankers near the Strait of Hormuz were struck over the weekend, and Muscat on Sunday said that planned talks with Tehran about a joint shipping lane, which on Friday weighed on prices, had been postponed.