Oil falls as Russia diesel supply prospects counter Gulf supply risks

Oil prices slipped on Tuesday, following a rise of nearly $2 per barrel the previous day, as traders evaluated supply risks from attacks on Saudi Arabia while considering the potential for extra diesel deliveries from Russia. Brent crude futures slid 61 cents, or 0.57%, to $106.04 a barrel, while US West Texas Intermediate crude futures declined 47 cents, or 0.5%, to $93.27 a barrel.

Brent futures ended at $106.65 a barrel on Monday, the highest level since September 15. President Donald Trump announced that Russia had agreed to supply diesel to global markets, and his administration temporarily lifted sanctions on Russian fuel in an effort to remove revenue from Moscow's war in Ukraine. However, US lawmakers from both parties argued that Trump's agreement with Putin may breach US law, which prohibits imports of Russian energy until Moscow ceases its aggression against Ukraine.

Despite the potential relief from additional Russian diesel supplies and steadier Saudi crude flows, the market remains more concerned about the possibility of further attacks on ships or pipelines in the Gulf than reassured by the extra barrels. Tim Waterer, a KCM Trade chief analyst, stated that until clearer signs of de-escalation emerge, the market is likely to continue leaning higher.

Concerns over the vulnerability of Gulf energy infrastructure and shipping lanes persist, following Iran-aligned Houthis' recent strike on Riyadh's international airport and tanker attacks near the Strait of Hormuz. These incidents have threatened to disrupt the recovery in Middle East supplies seen in September and have heightened fears of additional disruptions along one of the world's most critical energy transit routes.

OPEC and non-OPEC Participating Countries in the Declaration of Cooperation expressed concern, as shipping and insurance costs have surged to unprecedented levels, surpassing one-third of the commodity value, which hinders the efficient movement of crude oil and products. Haitham Al Ghais, Secretary General of OPEC, announced that the organization had revised down its oil demand growth forecast for the year to 400,000 barrels per day from the initial estimate of 1.4 million bpd at the beginning of the year, citing developments throughout the year.