Key Points:
- Oil prices rose after Saudi Arabia reported reduced production capacity due to attacks.
- Saudi Arabia’s capacity is down by 600,000 barrels/day, affecting crude exports.
- The Strait of Hormuz remains a critical point of tension, affecting global oil flows.
- US and Japan are tapping reserves to counter supply disruptions and rising costs.
Oil prices increased for a second day after Saudi Arabia announced a cut in its production capacity due to attacks on energy infrastructure. However, futures are still on track for their biggest weekly loss since June.
Brent crude climbed to nearly $97 after gaining 1.2% on Thursday in uneven trading. Despite this rise, it remains down over 10% this week after the US and Iran announced a ceasefire on Tuesday. West Texas Intermediate was trading around $99 a barrel.
Saudi Arabia’s press agency reported that the nation’s oil production capacity has been reduced by about 600,000 barrels a day because of attacks on energy infrastructure. According to Bloomberg calculations, this figure accounts for roughly 10% of the kingdom’s usual crude oil exports.
Meanwhile, attacks on a pumping station that serves the East-West pipeline this week cut daily flow by 700,000 barrels. Saudi Arabia uses this pipeline to export crude via the Red Sea. Kuwait also reported intercepting drone attacks and stated that some critical facilities were targeted.
“The drop in East-West pipeline flow weakens Saudi’s strategy to bypass the Strait of Hormuz and highlights ongoing supply risks,” said Mohith Velamala, a global oil analyst at BloombergNEF. “This further complicates crude oil availability in Asia.”
Countries that rely heavily on Middle Eastern supplies, like Japan, have started using their reserves. Japan will release about 20 days of oil from its stockpiles in May, Prime Minister Sanae Takaichi said. The US also offered up to 30 million barrels from its Strategic Petroleum Reserve through an exchange to help offset rising energy costs due to the Middle East disruptions.
US President Donald Trump said on Thursday he was “very optimistic” about a deal with Iran. He also stated that Israel was “going to low-key” its strikes on Tehran-backed Hezbollah militants in Lebanon, although Israeli Prime Minister Benjamin Netanyahu repeated that the ongoing attacks were not part of the US-Iran ceasefire agreement. Trump later threatened Tehran over charging fees in the Strait of Hormuz.
“There are reports that Iran is charging fees to tankers going through the Hormuz Strait,” Trump wrote Thursday on social media. “They better not be and, if they are, they better stop now!”
Attention will now shift to Islamabad, where Vice President JD Vance is expected to lead the US delegation in discussions with Iranian officials on Saturday. A key topic will be the Strait of Hormuz, whose near-closure since late February has disrupted a fifth of global oil and liquefied natural gas flows, causing a severe supply shock.
