Oil slips as Saudi Arabia offers more crude via Oman; diesel near record high

Oil prices experienced a decline on Wednesday following reports that Saudi Arabia would provide additional crude shipments through Oman, which alleviated concerns about potential Middle East supply disruptions. Brent crude futures dropped $2.92, or 2.7 per cent, to $105.83 per barrel, while U.S. West Texas Intermediate futures declined $3.40, or 3.2 per cent, to $102.43 per barrel.

Saudi Arabia's offer of more loadings of crude oil to Asian refiners via ship-to-ship transfers off Oman's Sohar port helped mitigate some supply loss concerns from attacks on the country's East-West pipeline to the Red Sea, according to people familiar with the matter. UBS analyst Giovanni Staunovo noted that easing concerns about potential disruption is evident in the reports of Saudi Arabia exporting from the Gulf.

Oil prices had risen over $3 the previous session due to rumors that Saudi Arabia's Red Sea export hub of Yanbu had suspended crude loadings and Riyadh had canceled some cargo deliveries to European customers. The suspension came after attacks on the East-West pipeline, which supplies the Saudi port of Yanbu. Yanbu became Saudi Arabia's primary outlet for oil exports after Iran blocked the Strait of Hormuz following U.S. and Israeli attacks on the country at the end of February.

The Strait of Hormuz currently allows limited vessel passage, down from seven days prior, with preliminary shipping data showing only four ships passing through on Tuesday. The reduced activity is significantly below the 10-day average of 18 ships. U.S. Energy Information Administration data indicated a smaller-than-expected draw from U.S. crude inventories last week, with crude oil stocks falling about 640,000 barrels compared to expectations of a 1.62 million barrel draw.

The smaller draw, coupled with rising gasoline and distillate inventories, put downward pressure on oil prices. Diesel prices surged to record highs due to tensions escalating in the Middle East, as the region is a major supplier of diesel and suitable crude oil grades. European gasoil futures reached a record high, while U.S. ultra-low sulfur diesel futures also hit a new high.

Tensions in the Middle East have escalated further with Saudi airstrikes on Yemen and Iranian-backed Houthi fighters launching drones and missiles at Saudi cities. Citi analysts expect heightened escalation to support crude oil and refined fuel prices until the Strait of Hormuz eventually reopens in 2026.