Brent Jumps 3.2% to $112.33 as Supply Disruption Fears Mount

Key Facts

Brent futures rose 3.2%, or $3.51, to $112.33 a barrel at 1705 GMT on Oct. 22, on track for their highest close since May 4, according to a Reuters report published via Euronext. The agency attributed oil’s roughly 3% rise to a five-month high to concerns about energy supply disruptions after Houthi attacks in Saudi Arabia. The concerns followed Aramco’s request for employees to evacuate its headquarters in Dhahran and work remotely, Reuters reported. The Associated Press said a nighttime attack struck the headquarters and damaged the offices of the chief executive and senior officials, with no injuries reported, according to regional officials. Market data showed Brent closing at $113.17 on Oct. 22, then $113.68 on Oct. 23, putting the daily move in the context of two consecutive closes above the $112.33 level recorded during the Oct. 22 session.

Concerns extended beyond Aramco’s headquarters to regional supply routes, as attacks on ships in the Strait of Hormuz and Houthi strikes on Saudi Arabia and its oil infrastructure continued. A BVM analyst said reports that Middle Eastern oil exports had exceeded pre-conflict levels were “offset by even more ship attacks in the Strait of Hormuz and Houthi strikes in Saudi Arabia and on its oil infrastructure.” Morgan Stanley analysts estimated Middle Eastern crude exports at about 17 million barrels per day in the previous week, compared with an average of about 18 million barrels per day during the twelve months before the Iran war, based on Kpler data. The comparison shows that estimated exports last week remained below that average, while market concerns focused on additional risks to shipments and infrastructure. In a separate incident, the Associated Press said debris from a drone intercepted by Saudi Arabia killed two people and injured two others at an Aramco-operated oil field in the kingdom’s southeast; the ministry said the victims and injured people were Nepalese, Filipino, Pakistani and Indian nationals.

The U.S. Department of Energy announced plans on Oct. 22 to provide up to $150 million in funding under Title III of the Defense Production Act to expand domestic petroleum production, storage and logistics at U.S. refineries. The department said the funding is expected to increase U.S. refinery output “by millions of gallons per day,” without specifying a final amount of additional production. It added that the project selection process is ongoing and that selected projects will be announced later. The announcement differs from a presidential determination issued on April 20, which deemed domestic petroleum production, refining and logistics, including pipelines, storage and marine terminals, to be industrial resources, materials or technologies essential to national defense. The funding therefore falls within an effort to expand domestic capacity, while the determination classifying those capabilities dates back months before the October events.

U.S. inventory data for the week ended Oct. 16, released on Oct. 21, showed crude stocks fell 3.061 million barrels, compared with expectations for a decline of 0.8 million barrels. Stocks had fallen 8.557 million barrels in the week ended Oct. 9, making the latest draw smaller than the previous week’s but larger than expected. Gasoline inventories also fell 2.952 million barrels, against expectations for a decline of 0.310 million barrels. By contrast, distillate inventories rose 1.675 million barrels, despite expectations for a decline of 1.240 million barrels. Inventory movements thus diverged between crude and gasoline on one hand and distillates on the other, with crude and gasoline draws exceeding market estimates.

In subsequent trading, Brent fell 21 cents, or 0.2%, to $112.96 a barrel in early Asian trading on Oct. 23 at 0030 GMT, after closing in the previous session at its highest level since May 4. Brent was on track for a third consecutive weekly gain, while West Texas Intermediate was set to end a two-week winning streak with a decline, Reuters reported. On Saudi supply, Aramco chief Amin Nasser said the East-West pipeline’s capacity had risen from 2 million barrels per day to 7 million, along a route that bypasses the Strait of Hormuz. The Associated Press reported that tankers continued to pass through the strait under U.S. military protection, and that some operators were moving oil at night with positioning systems and phones switched off. The agency cited Lloyd’s List Intelligence as recording 28 attacks on ships in October, the highest number since the war began, while ship-to-ship transfers take several days. U.N. spokesperson Stéphane Dujarric called for commercial vessels not to be targeted and for diplomacy between Washington and Tehran to reopen the strait and reduce tensions.

Attention now turns to U.S. inventory data for the week ended Oct. 23: the American Petroleum Institute’s schedule lists its statistical bulletin for release on Oct. 27, while the Energy Information Administration set Oct. 28 for its next report. Both dates follow the Oct. 21 report covering the week ended Oct. 16, which recorded draws in crude and gasoline and an increase in distillates. On U.S. supply, the Department of Energy said project selection for the funding is ongoing and that it will announce the results later. A U.N. spokesperson also called for diplomatic action between the United States and Iran to reopen the Strait of Hormuz and reduce tensions. These developments put shipping routes, inventory results and details of the funded projects among the key developments expected in the coming days.