Brent crude prices spiked to $110 per barrel on Friday, marking a significant escalation from previous levels as Middle East tensions intensify. According to Bloomberg, Brent gained toward $107 a barrel — climbing toward an intraday peak just below $110 touched on Friday, which was the highest price since May. This represents a substantial increase from the previous surge when Brent crude surged as much as 5% to touch $110 a barrel on Monday, marking a significant escalation from previous levels as Middle East tensions intensify. The benchmark has now risen over 30% from lows recorded in early August after efforts to secure a permanent agreement between the US and Iran failed to materialize, with fighting resuming later in August.
Saudi Arabia's East-West pipeline, which can transport up to 7 million barrels per day, was attacked and will remain out of service for several weeks following drone strikes launched from Iraqi territory. The 1,200-km pipeline, which allows Saudi crude to reach the Red Sea while bypassing the Strait of Hormuz, was shut down as a precaution following attacks and has not given any indication of when operations will resume at normal capacity. According to The Associated Press, repairs could take three to five weeks, although partial operations could resume sooner. As per Bloomberg, Saudi Aramco has yet to say when it may restart the critical conduit, while Riyadh is trying to raise shipments through the waterway further to compensate for the pipeline shutdown. This development comes after Saudi Arabia reported to OPEC that it produced 6.238 million barrels per day in August, the lowest monthly output recorded since 1990 and 1.9 million barrels per day below July levels.
Iran-backed Houthi forces in Yemen launched fresh attacks on Saudi Arabia on Monday, targeting the Khamis Mushait military airbase in the country's south. The Houthis said the missile and drone attack was carried out in retaliation for Saudi strikes in Yemen, with the assault reportedly targeting aircraft hangars, radar systems, runways and ammunition depots. The latest attack followed strikes on Friday that Riyadh blamed on Iran-backed fighters in Iraq, which disrupted Saudi Arabia's East-West pipeline and have now extended the supply disruption. Saudi Arabia uses the pipeline to reroute around four million barrels of oil per day to the port of Yanbu, representing approximately 4% of global oil supply that could be removed from the market if operations remain disrupted.
Commodity vessel traffic through the Strait of Hormuz dropped to fewer than 10 transits a day over the weekend, from a 10-day average of 14, raising significant concerns over a route that typically carried about one-fifth of global oil supplies before the U.S.-Israeli war on Iran began on February 28. This dramatic reduction in shipping activity highlights the growing impact of Middle East tensions on global energy flows. Oil traders are treating every fresh attack or infrastructure hit as incremental supply risk, while staying highly sensitive to any sign that the East-West pipeline or Hormuz flows could normalise, said Tim Waterer, chief market analyst at KCM Trade. Plenty of uncertainty remains over the extent of damage and the duration of the outage for the East-West pipeline in Saudi Arabia. Prices are likely to remain well supported until we get clarity, according to ING analysts.
Goldman Sachs has outlined a scenario in which oil prices could climb as high as $120 a barrel if attacks on Middle Eastern vessels intensify, according to The Economic Times. If exports return to normal, however, the bank expects oil prices to move back towards $80 a barrel. JPMorgan estimates that each additional month of disruption could add around $7 to $8 a barrel to Brent prices, with the bank expecting average monthly Brent prices to reach around $114 a barrel if the disruption continues for three months. Citi has raised its average Brent crude price forecast for the third quarter to $86 a barrel from $80, citing a longer-than-expected timeline for the reopening of the Strait of Hormuz. ANZ analysts have also lifted their short-term Brent forecast to $95 a barrel and warned that prices could rise further if the Middle East conflict escalates.
