LONDON: Oil rose as Saudi Arabia reported drone attacks on pumping stations, the latest escalation in Middle East tensions after tankers were hit by sabotage over the weekend.
Futures rose 1.2% in New York, reversing Monday’s drop. Unidentified drones attacked two pumping stations belonging to Saudi Aramco, forcing the state oil company to suspend operations in the area to assess what the kingdom said was ‘limited’ damage. That follows damage to oil tankers anchored off the United Arab Emirates on Sunday.
Oil volatility has jumped this month as crude is buffeted by the specter of a full-blown trade war on the demand side, while a combustible Middle East and production disruptions from Norway to Nigeria are throwing the supply outlook into doubt. U.S. drilling activity and a pending decision by the Organization of Petroleum Exporting Countries and its allies on whether output curbs will be extended are taking a back seat to the various crises.
‘We are witnessing a tussle between economic concerns and tightening oil-market balance,’ said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London.
West Texas Intermediate crude for June delivery advanced 72 cents to US$61.76 a barrel on the New York Mercantile Exchange at 12:13 p.m. London time. The contract closed down 62 cents at US$61.04 on Monday.
Brent for July settlement was up 1.5% at US$71.31 a barrel on the London-based ICE Futures Europe exchange, after losing as much as 0.4% earlier. The global benchmark contract is trading at a US$9.38 premium to WTI.
Pump stations eight and nine on the East-West pipeline, which carries oil from Saudi Arabia’s eastern province to the Red Sea port of Yanbu were attacked by armed drones, Energy Minster Khalid Al-Falih said in an emailed statement. That ignited a fire that caused minor damage to station number eight, but it was eventually brought under control.
Aramco took precautionary measures and temporarily stopped operation of the pipeline, and is now evaluating the situation and working on restoring the operations, according to the statement. Exports of crude oil and products are working normally without interruption, Al-Falih said.
Houthi rebels in neighboring Yemen – who have long received backing from Iran – said earlier that they had targeted key Saudi installations with drones.
While the precise nature of the attacks on pumping stations or tankers remain unclear, they amplify tensions in the region. Antagonism between the U.S. and Iran intensified this month after President Donald Trump ended exceptions to sanctions on Iranian oil sales.
The Islamic Republic has previously threatened to block oil shipments through the Strait of Hormuz if the sanctions halt its energy exports. The U.S. deployed an aircraft carrier, bomber planes and defense missiles to the region last week.