Oil prices reversed an early slide and moved higher on Tuesday as a mixture of improving crude flows from the Middle East, a Group of Seven agreement to release emergency fuel stocks and U.S. policy action to ease diesel costs were tempered by fresh security risks to shipping and ongoing conflict-related supply concerns.
At 15:55 ET (19:55 GMT), Brent crude futures for December delivery were trading up 0.4% at $101.01 a barrel. U.S. West Texas Intermediate futures for November delivery were also 0.4% higher, at $89.81 a barrel.
Flows from the Gulf show signs of recovery
Shipping data indicate Gulf oil exporters made meaningful strides in September, surpassing pre-war levels for portions of the month. Kpler data cited by Reuters recorded a seven-day moving average for crude exports from the region of 18.3 million barrels per day on September 30, and noted that flows exceeded levels before the start of the Iran war in late February for 14 days during the month.
On Tuesday, Kpler reported that the average Middle East regional flows across seven days to October 4 were 20.22 million barrels per day, against a pre-war baseline of 23.29 million barrels per day. Those figures reflect an improving throughput even as threats to maritime routes continue to surface.
Security incidents keep premium on risk
Despite gains in volumes, attacks on ships transiting the Strait of Hormuz have ticked up, and vessels face threats through the Bab el-Mandeb Strait due to clashes between Iran-backed Houthi forces and the Saudi Arabia-backed Yemeni government. The Yemeni Armed Forces launched an offensive this week, backed by Saudi air strikes, to retake territory seized by the Houthis last month.
The Houthis struck at Saudi targets on Monday evening, including the Jazan and Najran airports. Media reports said the kingdom’s East-West Pipeline was again targeted but not disrupted. That conduit had been shut down recently after drone attacks, before being restarted.
Analysts at ING commented that the incident served as a "reminder that flows remain at risk." Reuters on Tuesday quoted Saudi Energy Minister Prince Abdulaziz bin Salman as saying oil pumped through the East-West Pipeline had reached 5.8 million barrels as of this morning.
Additional pressure on trader nerves has come from a lack of diplomatic progress between the U.S. and Iran. Tehran has increased attacks on vessels transiting the key waterway in recent days. The United Kingdom Maritime Trade Operations reported nine incidents this month, a number that matches roughly half the total incidents reported for September across both the Strait of Hormuz and the Persian Gulf.
G7, U.S. policy responses aim to ease market strain
Supply concerns were somewhat mitigated when Group of Seven countries agreed to release 100 million barrels of diesel and crude from emergency reserves and to refrain from energy export restrictions. The coordinated move responds to pressure from President Donald Trump and was aimed at easing tightness in refined fuels.
In addition, President Trump on Monday signed an executive order to bring down diesel costs through a set of immediate actions. Those measures include temporarily allowing wider highway use of tax-free dyed diesel and deferring the federal diesel tax on that fuel through the end of the year.
U.S. Energy Secretary Chris Wright told Fox News on Tuesday: "The order was signed yesterday... We’re in a crisis right now with a shortage of diesel because of the conflict between Russia and Ukraine, China deciding not to export diesel anymore, and we still have reduced flows of refined products out of the Middle East, although they’re on their way up." President Trump also said on Monday that Ukrainian strikes on Russian refineries were now pushing gasoline prices higher rather than the Middle East conflict.
U.S. consumers have felt the squeeze at the pump. The national average diesel price peaked at a record $6.5276 a gallon on September 22 and stood at $6.3151 at the time of the latest reporting.
EIA raises price outlook, but expects easing next year
The U.S. Energy Information Administration said on Tuesday it continues to assume that oil flows from the Middle East will remain constrained through the fourth quarter, while noting that regional shut-in production in September was the lowest since the start of the Iran war.
In its monthly Short-Term Energy Outlook, the EIA said it expects a mix of convoys through the Strait of Hormuz and alternative export methods - including bypass routes and increased ship-to-ship transfers - will support a gradual rise in production and exports from the region during the forecast period.
At the same time, the agency raised its global price forecasts. The EIA now expects Brent crude to average $105 a barrel in the fourth quarter, $14 a barrel higher than projected in its previous outlook. The EIA added that attacks on the East-West pipeline in Saudi Arabia highlight the potential for continued volatility in physical oil flows and prices amid global inventory drawdowns.
Pointing to extreme tightness in diesel markets as another source of upward pressure, the EIA said that situation increases demand for crude as refiners work to meet diesel requirements. Looking further ahead, the agency forecast that the Brent spot price will average $84 a barrel next year.
Market implications and near-term outlook
Traders and analysts are balancing signs that Middle East crude exports are recovering with continued operational risks to major transit routes and infrastructure. Policy actions from the G7 and the U.S. government provide short-term relief for refined product markets, especially diesel, but the persistence of maritime incidents and the absence of diplomatic breakthroughs leave a risk premium on oil prices.
For now, markets appear to be responding to both the supply-improving data and the potential for renewed disruption, producing the modest gains seen in Brent and WTI futures on Tuesday.