Oil prices hold above US$105 as Saudi supply disruptions deepen

Brent crude prices remained above US$107 a barrel on Wednesday as Saudi Arabia's disrupted oil infrastructure and Libyan production outages deepened global supply concerns. West Texas Intermediate fell 97 cents to US$104.86 a barrel, following a Tuesday surge triggered by mounting supply worries. The Red Sea port of Yanbu, a crucial alternative route for transporting crude around the Strait of Hormuz, was halted following an attack on the East-West pipeline.

Repairs could take weeks, although partial operations might resume sooner. This disruption led to Saudi Arabia canceling some late-September shipments to European customers, intensifying supply availability concerns. Iran-backed Houthi militants renewed attacks in Libya, prompting the National Oil Corporation to shut three oilfields, though national production remained steady at about 1.4 million barrels per day.

The oil market has focused on the vulnerability of key supply routes around the Strait of Hormuz and Red Sea, with physical crude cargoes in Europe trading at notable premiums. Despite US President Trump's claim of agreement to halt attacks on energy facilities during the Russia-Ukraine conflict, energy infrastructure attacks persist.

The US dollar index rose above 99.6 on Tuesday, extending its five-day advance as investors prepared for the Federal Reserve's interest rate decision later that day. The Fed is expected to raise rates by 25 basis points, signaling its first increase since 2023. Investors also monitor the Fed's updated economic projections for insights on future rate path.

Higher oil prices exacerbate inflationary pressures, complicating the monetary policy outlook, while tech executives' AI risks concerns and the Bank of Japan's upcoming rate hike weigh on equities and support US dollar demand.