Oil Rises as Gulf Storm and Middle East Attacks Threaten Supply

MONTREAL (Oil Monster): Oil prices moved higher Wednesday as Tropical Storm Isaias threatened U.S. Gulf production while escalating attacks in the Middle East reinforced concerns over an already strained global energy supply system.

Brent crude futures were up 75 cents, or 0.75%, at $101.33 per barrel by 1200 GMT. U.S. West Texas Intermediate crude rose 39 cents, or 0.44%, to $89.83.

The gains came despite a recovery in Middle East crude exports, with traders questioning whether the recent increase in supply can be sustained as storms, armed conflict and refinery disruptions continue to threaten production and transportation.

Tropical Storm Isaias Adds New U.S. Supply Risk

The weather system that traders were watching Tuesday has strengthened into Tropical Storm Isaias in the Gulf.

The U.S. National Hurricane Center said the storm is expected to intensify further as it moves toward the northern Gulf Coast.

Oil and gas infrastructure in the potential path is significant. Offshore areas exposed to the storm account for approximately 15% of U.S. crude oil production and 5% of domestic natural gas production.

Several Gulf Coast refineries could also face operational disruptions depending on the storm's eventual track and intensity.

Chevron Begins Offshore Preparations

Chevron has already begun evacuating non-essential workers from some offshore platforms considered at risk from the storm.

The company said production from its operated facilities had not been affected as of Wednesday and remained at normal levels.

Onshore facilities are also implementing storm-preparation procedures.

The precautionary moves underscore the potential for a weather event to remove additional U.S. supply from a market already dealing with geopolitical disruptions elsewhere.

U.S. Gulf Coast Holds Half of National Refining Capacity

The potential impact extends beyond offshore crude production.

Refineries in U.S. Gulf Coast states account for roughly half of national refining capacity, making the region critical to gasoline, diesel and jet-fuel production.

Any combination of offshore production shut-ins, refinery outages or port disruptions could tighten fuel availability further.

This is particularly important because global diesel inventories are already unusually low.

Middle East Conflict Continues to Support Oil Prices

The storm is arriving as geopolitical risks remain elevated across the Middle East.

Yemen's Iran-aligned Houthis attacked Aden International Airport on Wednesday using ballistic missiles and explosive-laden drones as fighting intensified between the group and Saudi-backed Yemeni forces.

The escalation follows a series of recent attacks affecting Saudi and regional infrastructure.

Persistent conflict has increased concern that damage to oil facilities, export routes or commercial shipping could reverse the recent improvement in physical crude supply.

Middle East Oil Flows Have Been Recovering

At the same time, more oil has begun reaching international markets from the Gulf.

Saudi Arabia has sharply increased use of its East-West Pipeline, which moves crude from eastern producing regions to Red Sea export terminals and allows shipments to bypass the Strait of Hormuz.

Saudi Energy Minister Prince Abdulaziz bin Salman said oil moved through the system at a rate equivalent to about 5.8 million barrels per day on Tuesday.

The kingdom has increasingly relied on the route as part of efforts to maintain exports despite security risks around Hormuz.

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Vitol Says Around 14 Million Bpd Is Leaving the Region

Vitol CEO Russell Hardy said approximately 12 million barrels per day of crude oil and another 2 million bpd of refined petroleum products had recently been leaving the Middle East.

Those flows have become crucial to the global market because commercial inventories elsewhere have already been depleted.

Hardy warned that losing a substantial portion of the current export flow could create the conditions for a much more severe oil-price shock.

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Traders Question Whether Export Recovery Can Last

Despite rising Gulf exports, market participants remain cautious about treating the improvement as permanent.

PVM analyst Tamas Varga said investors were not convinced that recent increases in Middle East supply and exports were sustainable.

Security risks in the Strait of Hormuz, attacks on oil infrastructure and the continuing conflict involving Iran all leave current export levels vulnerable to further disruption.

Diesel Market Remains Exceptionally Tight

Pressure in refined-product markets also continues to support crude prices.

European benchmark diesel futures were trading approximately $77 per barrel above Brent crude on Wednesday morning, highlighting the scale of the shortage in middle-distillate markets.

Damage to Russian energy infrastructure and months of reduced Middle East refinery output have limited the availability of diesel and other petroleum products.

Those shortages mean that even where crude availability improves, refiners remain under pressure to rebuild product inventories.

IEA Considers Additional Emergency Releases

The International Energy Agency held discussions Wednesday on a proposed release of additional oil and diesel stocks as governments look for ways to ease pressure on consumers and industry.

Emergency releases could help limit short-term price spikes by replacing part of the oil removed from commercial inventories.

However, analysts caution that strategic stock releases provide only temporary relief if the underlying supply, refining and transportation constraints remain unresolved.

Ukraine-Russia Energy Attacks Add Another Risk

Energy infrastructure outside the Middle East is also contributing to the market's risk premium.

Ukraine struck two Russian oil facilities Wednesday while Russia launched another wave of missiles and drones against Ukraine.

Continuing damage to Russian refineries has reduced global fuel availability at the same time that Middle East refinery production remains constrained.

Oil Remains Near $100 Despite Higher Gulf Supply

The persistence of Brent above $100 shows that rising Gulf exports alone have not returned the market to normal.

Crude supply has improved, but shipping costs remain high, refinery capacity is constrained and global inventories are depleted.

The arrival of a Gulf storm now adds a weather-related threat to a market already managing several simultaneous geopolitical risks.

What Happens Next

The near-term oil outlook will depend heavily on the track and strength of Tropical Storm Isaias and whether U.S. producers or refiners are forced to shut facilities.

Markets will also watch whether Middle East exports continue at their recent pace, whether Houthi attacks spread to additional energy infrastructure and whether the IEA proceeds with further emergency stock releases.

For now, improving crude supply is preventing a sharper price rally, but repeated threats to production, refining and shipping are keeping Brent above $100 per barrel.

Explore More on OilMonster

• Around 14 Million Barrels Per Day Leaving Middle East, Vitol CEO Says
• Oil Market Turmoil Could Last for Years, Executives Say
• Oil Slips as Middle East Crude Exports Rise, G7 Releases Stocks

Sources: Reuters; U.S. National Hurricane Center.