Brent hits $108 after Saudi pipeline shutdown, US diesel relief stays out of reach
Brent crude hit $108 a barrel Monday before easing to $107.22, and WTI was $102.66, after Saudi Arabia shut its East-West pipeline in response to drone attacks. For US buyers the bigger problem is diesel. Refiners here are already running flat out, so higher crude feeds straight into rack prices with no slack to absorb it.
The Saudi shutdown
Saudi Arabia stopped the East-West pipeline as a precaution after drones launched from Iraqi territory near the Iranian border hit the line and caused injuries. That pipeline carries crude across the kingdom to the Red Sea so cargoes can skip the Strait of Hormuz. With it offline, loadings at the port of Yanbu are uncertain, and Asian refiners are still waiting to hear how their barrels are affected. Reuters sources put the potential loss at about 4% of global supply. Hormuz itself is thinning out: 14 commodity vessels crossed over the weekend, single digits a day, against a 10-day average of 14 a day.
Diesel margins
RBN's latest note lands on the part that matters for haulers. A wide crack spread doesn't automatically pull more diesel out of a refinery. US plants are near the top of their run range, and when supply gets disrupted overseas it drains US inventories rather than being met by more domestic output. The crack can stay fat and the barrels still don't show up. Diesel relief looks unlikely to come quickly while crude is climbing and runs are already maxed.
The Fed
The crude jump is feeding into rate expectations. CME Group data cited by The National has about 90% of trading desks expecting a 25 basis point hike from the Fed this week, after the ECB raised by the same amount last week. Higher rates raise the cost of carrying inventory for jobbers and anyone financing a tank of product.
Russian refineries
Trump called for Russian refineries to be spared as diesel prices climb, a sign Washington is watching the distillate market closely. Global refining is tight enough that taking Russian plants offline could pinch the diesel picture further.
Dangote
Nigeria's Dangote said a secondary listing of his refinery could come in the US, and the plant is opening to public ownership. It's Africa's biggest refinery and a growing factor in Atlantic Basin product flows, so how it runs may matter to US Gulf and East Coast supply over time.
What to watch
Whether the East-West line restarts and Yanbu loadings resume. Whether the postponed Gulf-Iran meeting gets rescheduled. The Fed decision this week. And US distillate inventories, which could tighten further if overseas disruptions keep pulling barrels out.