Oil prices climb as traders weigh Saudi supply risk, Russian diesel flow

Oil prices surged on Wednesday as traders considered the potential impact of conflict between Yemen's Iran-allied Houthis and Saudi Arabia, alongside the possibility of increased diesel exports from Russia. Brent crude futures surged 89 cents, or 0.8%, to $106.58 a barrel, while US West Texas Intermediate crude futures jumped 80 cents, or 0.9%, to $94.94 a barrel.

Brent crude fell 0.9% on Tuesday, while WTI rose 0.4%. Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment, attributed the price increase to concerns over supply disruption caused by the Houthi-Saudi conflict, but also noted that the expectation of increased Russian diesel exports would help keep the market from experiencing sharp price fluctuations.

The Houthis attacked a Saudi Aramco administrative building in Dhahran, causing a limited fire, according to Saudi Arabia's energy ministry. The group has also fired ballistic missiles and drones at Saudi Arabia in retaliation for the kingdom's support of Yemeni government forces. Four strikes on Riyadh's international airport have occurred, with a strike on Saturday that killed 13 people.

In response to the conflict, Saudi Arabia raised oil production despite disruptions to shipments due to the US-Iran war, resulting in a significant increase in production from OPEC+ - the Organization of the Petroleum Exporting Countries and its partners, including Russia. Iran is reportedly deploying new tactics to target ships in the Strait of Hormuz, aiming to maintain high oil prices and influence the U.S. midterm elections.

The Russian government dismissed the connection between peace talks with Ukraine and its deal to export diesel to the U.S. following reports that U.S. envoys had informed Ukrainian officials that the deal was part of an effort to draw Russia back into negotiations for a peace settlement.