Saudi pipeline attack lifts crude while maxed-out US refiners keep diesel tight

US refiners are already running flat out, so the diesel squeeze RBN Energy flagged this week may not ease even with crack spreads this fat. Wide margins would normally pull more product out of a refinery. They cannot when the units are maxed, and disruptions overseas keep drawing barrels out of US inventories to cover the gap. For jobbers that means firmer rack prices on distillate and a real chance of allocation if the draws keep running.

The Saudi pipeline

Brent hit $108 a barrel earlier today before easing to $107.22. WTI was around $102.66. The move followed a drone attack on Saudi Arabia's East-West pipeline, the line the kingdom uses to move crude to the Red Sea and skip the Strait of Hormuz. Reuters sources say the strike could cut off as much as 4% of global oil supply, and Saudi's Yanbu port was hit.

Asian refiners are already pressing Riyadh on what happens to their contracted barrels. When Asia goes shopping for replacement crude, US Gulf and cargo markets feel the pull, and that works its way into what you pay at the terminal.

Hormuz traffic

Commodity vessel traffic through the Strait of Hormuz fell to single digits a day over the weekend, 14 vessels total, well under the recent run rate. About a fifth of the world's oil moves through that water. Thin traffic does not take barrels off the market by itself, but it lifts the risk premium every trader is now pricing, and that premium shows up in your crude benchmark long before it shows up anywhere else.

The Fed

Roughly 90% of trading-desk respondents polled by CME Group now expect the Fed to raise rates 25 basis points this week, according to The National, after the ECB moved the same amount last week. Higher rates raise the cost of carrying inventory. That bites if you are financing a tank of distillate that just got more expensive to fill.

What to watch

Whether Saudi restores the East-West line and reopens Yanbu is the near-term question, along with how hard Asian refiners bid for alternative crude. Watch US distillate draws too. If they keep running, a supplier or two could put branded and unbranded customers on allocation, and unbranded buyers usually feel it first. Crude could ease if Hormuz traffic normalizes and the diplomacy that stalled this weekend restarts. It could firm further if the attacks continue.