Brent Jumps 7% to $100.69 After Fire on Saudi Tanker in Red Sea

Key Facts

An attack on the Encelia sparked a fire at the vessel’s bow as it sailed in the Red Sea, while Brent crude ended Thursday’s July 23 session up 7% at $100.69 a barrel, according to Reuters data. The Houthis said they had targeted the Saudi oil tankers Encelia and Layla with missiles and drones, claiming the vessels had violated the naval blockade they had declared on Saudi Arabia. But Saudi Arabia’s Transport General Authority confirmed only that the Encelia had been hit; the alleged attack on the Layla was not confirmed. The authority said all members of the Encelia’s crew were safe and that measures had been taken to secure the vessel and protect the marine environment. The incident underscores the risks of disruption to Red Sea navigation as Saudi Arabia uses Yanbu port to avoid the risks of the Strait of Hormuz.

Reuters quoted a maritime security source as saying the Encelia sent a distress call late Wednesday and reported being hit by a missile near Saudi Arabia’s Jizan port. Saudi confirmation said the attack caused a fire at the vessel’s bow, without identifying the weapon used. The Saudi Press Agency said the Encelia was owned by a Saudi company and described the attack as a violation of international laws and agreements that ensure the safety of commercial vessels and their crews. The agency confirmed the crew was safe and that measures had been taken to protect the vessel and marine environment. Official confirmation was thus limited to one commercial vessel being hit, while the account of a second tanker being targeted remained a Houthi claim.

During trading, Brent had risen 4.80% to $98.59 a barrel at 09:35 GMT on Thursday, according to DD News. Its gains then widened to 7% at settlement, closing at $100.69, its highest close since May 22, according to Reuters. West Texas Intermediate crude rose 6.2% to $92.19 a barrel at the close. The figures reflect the price movement during the session and do not establish that the attack alone caused the increase. Oil prices had risen for a fifth consecutive day as confrontations between the United States and Iran threatened supply routes, according to Reuters’ report on the session.

The Red Sea’s importance goes beyond its role as an alternative shipping route: an amount equivalent to about a quarter of global oil supplies passes through the straits of Hormuz and Bab el-Mandeb combined, according to analyst estimates cited by Reuters. Saudi tankers had been heading to Red Sea port Yanbu to avoid risks in the Strait of Hormuz, with millions of barrels a day redirected to this route. If passage through the southern end of the Red Sea becomes impossible, the northern route through the Suez Canal is a longer and more costly alternative. In the days before the report, five tankers changed course to avoid the Bab el-Mandeb Strait on Wednesday, while three tankers carrying Saudi oil and bound for China and India turned back on Tuesday. These movements put the safety of maritime corridors among the factors affecting the flow of Saudi exports to Asian markets.

S&P Global Energy data showed that average flows of crude and oil products completing passage through Bab el-Mandeb were 2.6 million barrels a day between July 1 and 20, down from 5.5 million barrels a day in June. In the July 23 session, the Brent-Dubai cash price differential widened to $15.80 a barrel, up 31.12% on the day. Murban crude’s premium to Dubai also rose to $24.98 a barrel, its highest level since April 7. These indicators reflect the growing sensitivity of crude pricing to the availability of supplies and their transport routes in the region. The director of commodities at Bannockburn Capital Markets said the market was trying to assess the impact of simultaneous disruption in Hormuz and the Red Sea, adding: "The market is trying to gauge the physical market situation amid a dual disruption involving the Strait of Hormuz and the Red Sea."

Saudi options for delivering crude to markets include alternative sea routes from Yanbu. The Associated Press reported that the kingdom was exporting about 4 million barrels a day through the port amid the disruption to the Strait of Hormuz. Up to 2.5 million barrels a day could be transported through the Red Sea to Egypt for use of the SUMED pipeline, or 1 million barrels a day through the Suez Canal, according to the report. These routes remain dependent on safe navigation and their capacity to handle shipments. In response to the threats, Saudi military spokesman Turki al-Maliki said Houthi threats to passing ships "will be met swiftly and decisively," describing them as a flagrant violation of international law and acts of maritime piracy. A U.S. maritime advisory had said on August 24 that the tankers AMZAN and DAISY were hit by Houthi missiles off Yanbu, and said Saudi-linked vessels faced a higher risk in the southern Red Sea, Bab el-Mandeb and the Gulf of Aden until further notice.