Oil Flips Higher on Saudi Fuel Depot Attack, Kazakh Exports

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- West Texas Intermediate futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange reversed higher Friday afternoon following media reports indicating Iran-backed Houthis rebels in Yemen launched a successful drone attack on Saudi Aramco oil infrastructure, setting fire to a fuel depot in Jeddah and petroleum redistribution center in Jazan in western Saudi Arabia.

The incident comes less than 24 hours after Russia throttled capacity on a major pipeline carrying oil from Kazakhstan oilfields to export ports on the Black Sea. The operator of Caspian Pipeline Consortium has partially restarted flows on Friday, however, it remains unclear how much crude is currently being offloaded at the port of Novorossiysk.

On the session, NYMEX May West Texas Intermediate futures advanced $1.56 to $113.90 barrel (bbl) and ICE May Brent futures rallied to $120.65 bbl, up $1.62 from Thursday's settlement. NYMEX April RBOB futures gained 8.03 cents to $3.47 gallon, and April ULSD futures dropped back 3.38 cents to $4.1146 gallon.

Investors are navigating a myriad of geopolitical risks flaring from the conflict in Ukraine and escalating tensions in the Middle East, where Houthis rebels have intensified their rocket attacks on Saudi oil infrastructure, threatening a vital artery of global energy security. Saudi Arabia's air defense forces intercepted nearly a dozen drones and missiles launched by the Houthi militia Friday, according to a statement from Coalition forces, but two of those drones reached their targets. An oil storage facility in Jeddah and petroleum redistribution station in Jazan, both deep in Saudi territory, sustained severe damage from the attack, leaving both facilities on fire.

Saudi Arabia warned this week that oil supplies are at risk and called on the U.S. and Western partners to do more to counter attacks from the Iran-backed Houthis -- a message the kingdom reiterated Friday.

"This aggressive escalation targets oil facilities and is meant to try to affect energy security and the global economy," Saudi defense ministry spokesman Turki al-Maliki told reporters after the attack, adding that "Saudi Arabia will not be held responsible for any shortages of oil supply to global markets caused by Houthi strikes."

The news exacerbated uncertainty over available oil supply on the global market after Russia choked off oil flow on the Caspian Pipeline Consortium pipeline this week, citing extensive damage at one of the offloading ports located on the Black Sea. The CPC pipeline has a 1.4 million barrels per day (bpd) throughput capacity and carries crude oil from oilfields in central Asia to export terminals on the Black Sea.

Kazakhstan Energy Minister Bulat Aqchulaqov indicated Friday that one of the three moorings at the site sustained little damage from an alleged storm and partially restarted operations. Earlier this week, Russian officials argued that it could take up to six weeks to fix damaged infrastructure at the port that processes up to 90% of Kazakhstan oil exports.

A prolonged disruption of the CPC pipeline could have forced Kazakhstan to shutter production wells because of limited storage capacity, potentially inflicting long-lasting damage to the country's production capacity.

Separately, European leaders this week decided against sanctions on Russian oil and gas exports as part of a response to Moscow's aggression in Ukraine -- a decision that could have removed up to 3 million bbl in daily crude exports from Russia. Speculation had been building for weeks that a potential ban on Russian oil could in fact be implemented after some European leaders voiced support for the embargo. Countries that are less dependent on Russian oil, such as Sweden, Ireland, and the Czech Republic, view an oil ban as an option while some of the bloc's largest importers, like Germany and Netherlands, remain opposed to the idea. For perspective, Germany imported 490,000 bpd of crude oil and condensate from Russia last year, accounting for 21% of Russian imports into OECD Europe and second only to the Netherlands at 640,000 bpd. Germany, the bloc's largest economy, already suffers from an economic slowdown triggered by surging natural gas and diesel prices that weigh heavily on its manufacturing sector.

"Business confidence has taken a hit, with the war in Ukraine and its impact on prices, supply chains and demand expected to have repercussions for growth over the remainder of the year," said Phil Smith, economics associate director at S&P Global.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges