An employee collects a sample of crude oil for laboratory testing. (Photographer: Andrey Rudakov/Bloomberg)

Oil Rallies as Mideast Tensions Flare Over Saudi Pipeline Attack

(Bloomberg) -- Oil soared to a two-week high as Saudi Arabia accused Iran of ordering this week’s attack on its key oil facilities, fueling tensions between two of the world’s oil-producing superpowers.

Futures in New York advanced 1.4% on Thursday. Saudi Arabia’s vice-minister of defense and brother of the country’s de facto ruler said on Twitter that Tuesday’s drone attack was ordered by Iran.

His comments came as Saudi-led forces launched retaliatory airstrikes against Houthi positions in Yemen, where the United Nations is working to end a four-year war. The escalation also follows the U.S. ordering non-emergency staff to leave neighboring Iraq due to increasing threats in the region.

“Anyone who knows the Middle East knows that there are plenty of tripwires and the risk of escalation is always there,” said Tamar Essner, director for energy at Nasdaq Corporate Solutions in New York. “With every attack that goes off, the risk and the stakes go higher.”

Oil Rallies as Mideast Tensions Flare Over Saudi Pipeline Attack

While Saudi’s pipeline has reopened, officials from all sides are warning that a string of recent events have pushed the region closer to a potentially devastating conflict. Recent attacks on oil tankers highlight regional tensions in the Persian Gulf as relations between the U.S. and Iran also deteriorate. That’s put a damper on any demand concerns related to the intensifying trade war between the U.S. and China.

In the physical market, Brent-linked crudes remain tight after supply outages and contamination issues roiling European refiners and traders.

West Texas Intermediate crude for June delivery gained 85 cents to settle at $62.87 a barrel on the New York Mercantile Exchange, the biggest gain since late April.

Brent for July settlement rose 85 cents to end the session at $72.62 a barrel on the London-based ICE Futures Europe exchange. The global crude benchmark traded at a $9.56 premium to WTI, the widest gap since February.

Tensions have flared after the White House vowed to squeeze Iranian oil exports to zero and later dispatched an aircraft carrier group to the region. Meanwhile, the Iraqi Oil Ministry contradicted a report that Exxon Mobil Corp. employees were being evacuated.

Crude was also riding a rebound in equity markets, with the S&P 500 headed for its biggest three-day rally in four months, boosted in part by solid corporate earnings and strong housing data.

Other oil-market news:
  • Gasoline futures rose 2.4% to settle at $2.0618 a gallon, a day after U.S. data showed declining gasoline stockpiles. 
  • Tensions in the Middle East could prompt refiners to switch to crudes from West Africa and the U.S., Frontline CEO Robert Hvide Macleod said in an earnings call.
  • Mexico is working on a new formula for pricing its crude to reflect upcoming regulations on fuel oil that will affect its multi billion-dollar sovereign oil hedge, its chief executive officer said in an interview. 

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