Saudi Pipeline Attack Fuels Oil Rally As Supply Risks Return

(MENAFN- Khaleej Times) Global oil markets have started the week on a firm footing, with crude prices continuing to climb above the $100-a-barrel mark as traders assess the implications of a drone attack on Saudi Arabia's East-West pipeline and renewed uncertainty around energy flows from the Middle East.

Brent crude futures surged $2.72, or 2.6 per cent, to $107.33 per barrel at 1539 GMT, having hit a session high of $108.65 earlier, according to Reuters data. US West Texas Intermediate (WTI) crude rose $2.51, or 2.5 per cent, to $102.56.

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The latest rally follows Saudi Arabia's decision to halt operations on the East-West pipeline, a major export route capable of transporting around 7 million barrels per day and a critical alternative to shipments through the Strait of Hormuz. The move came after drones damaged the pipeline, although the extent of the damage and the timeline for reopening remain unclear.

According to Vijay Valecha, Chief Investment Officer at Century Financial, the shutdown has heightened fears of tighter supplies at a time when geopolitical tensions are already disrupting trade routes across the region.“If the pipeline closure is prolonged, it could lead to output cuts by the Kingdom, suggesting a short-term bullish market structure,” he said.

Valecha noted that crude prices have posted gains of more than 9% for two consecutive weeks, underlining strong bullish momentum. However, he cautioned that technical indicators are approaching overbought territory, raising the possibility of short-term profit-taking even as prices trend higher.

The market's latest advance reflects a growing belief that the conflict in the Middle East is no longer merely a geopolitical concern but an increasingly tangible supply issue. Nick Spencer-Skeen, Senior Executive Officer at Lunaro Markets Limited, said prices surged as attacks on tankers and energy infrastructure around the Strait of Hormuz began to affect the physical movement of oil.“Oil prices popped last week as the Middle East conflict increasingly translated into a physical supply problem,” he said.

He added that reduced vessel traffic through the crucial shipping corridor, combined with disruption to alternative export routes, has intensified concerns that Gulf oil supplies could remain constrained. Saudi Arabia's temporary pipeline closure and the lack of immediate progress toward reopening Hormuz have further increased those risks.

“As we enter the new week, it leaves oil trading with a sizeable geopolitical premium,” Spencer-Skeen said, warning that while diplomatic progress could trigger a sharp reversal, Brent may remain supported above $100 if shipping security fails to improve. He also highlighted the potential inflationary impact of higher energy prices across broader financial markets.

Despite the bullish sentiment, some analysts believe the market retains sufficient buffers to absorb a temporary disruption. Norbert Rücker, Head of Economics & Next Generation Research at Julius Baer, said the pipeline outage has undoubtedly increased uncertainty but is unlikely to trigger a prolonged supply crisis on its own.“The attack on Saudi Arabia's East-West pipeline and its subsequent closure rattles the oil market and keeps prices well supported for the time being,” he said.

Rücker noted that Saudi Arabia continues to export oil through Red Sea storage facilities, Hormuz shipments have largely continued despite heightened hostilities, and global inventories remain adequate to absorb short-term disruptions. While uncertainty over repairs and lost volumes could keep markets volatile in the coming weeks, analysts say the next direction for oil will depend on the duration of the outage and whether regional tensions ease or escalate further.

Beyond the immediate supply concerns, traders are increasingly focused on whether the latest disruption will prompt a broader reassessment of energy security risks across the Gulf. The East-West pipeline has long been viewed as one of Saudi Arabia's most important strategic assets because it allows crude exports to bypass the Strait of Hormuz, a narrow waterway through which roughly a fifth of the world's oil supply normally passes. Any threat to that alternative route naturally heightens concerns about the resilience of global energy infrastructure.

Market participants are also watching diplomatic developments closely. While previous episodes of heightened tensions in the region have often produced temporary price spikes, much depends on whether producers can maintain export flows and whether shipping operations remain largely uninterrupted. The postponement of talks aimed at establishing temporary shipping arrangements through Hormuz has added to uncertainty, leaving investors with limited visibility on how quickly current bottlenecks could be resolved.

The latest gains in oil have also revived concerns among central banks and policymakers already grappling with inflation risks. Higher crude prices typically feed through to transportation, manufacturing and logistics costs, potentially complicating efforts to keep consumer prices under control. For importing economies, sustained prices above $100 a barrel could increase pressure on trade balances and household spending, particularly if elevated energy costs persist into the final quarter of the year.

At the same time, analysts note that the market's reaction reflects not only the loss of a key export route but also a growing risk premium tied to geopolitical uncertainty. Even if physical supplies remain broadly adequate, traders often price in the possibility of further disruptions when tensions escalate around critical energy infrastructure.

For now, attention remains fixed on the pace of repair work in Saudi Arabia and the security situation around regional shipping lanes. A swift resumption of pipeline operations could ease some of the current concerns, but any signs of prolonged disruption or further attacks may keep oil prices elevated and markets on edge in the weeks ahead

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