Oil Prices Drop as Russian Diesel Supply Prospects Counter Gulf Supply Concerns

Oil prices fell on Tuesday and were heading for their first decline in nearly a week. Traders were assessing supply risks from attacks on Saudi Arabia while considering the possibility of more diesel supplies from Russia.

Brent crude futures fell $1.18, or 1.1%, to $105.47 a barrel by 0625 GMT. US West Texas Intermediate (WTI) crude futures dropped $1.17, or 1.3%, to $92.57 a barrel.

Both oil benchmarks had risen by nearly $2 a barrel in the previous session. Brent also closed at its highest level since September 15.

US President Donald Trump said Russia had agreed to supply diesel to global markets. His administration also temporarily lifted US sanctions on Russian fuel, which were intended to limit Moscow’s revenue for its war on Ukraine.

More Russian diesel supplies could ease pressure on global fuel markets and reduce some concerns about supply shortages.

However, ING analysts said in a note that “there is considerable scepticism over the Russia-Ukraine energy ceasefire, particularly with reports that Russia has hit Ukrainian energy targets since Trump announced it”.

Lawmakers from both major US political parties also complained that Trump’s agreement with Russian President Vladimir Putin appeared to violate US law banning Russian energy imports until Moscow ends its aggression against Ukraine.

Concerns about Gulf energy infrastructure and shipping routes also remained high after Iran-aligned Houthi fighters attacked Riyadh’s international airport over the weekend. Attacks on tankers were also reported near the Strait of Hormuz.

These incidents raised fears of further disruptions along one of the world’s most important energy routes and threatened to reverse the recovery in Middle Eastern oil supplies seen in September.

Tim Waterer, chief analyst at KCM Trade, said, “Fresh diesel supply from Russia and steadier Saudi flows are offering some relief, yet the market still looks more worried about the risk of further hits to ships or pipelines in the Gulf than it is reassured by extra barrels”.

“Until we see clearer signs of de-escalation, the path of least resistance still leans higher,” he said.

Ministers from OPEC and non-OPEC countries participating in the Declaration of Cooperation said shipping and insurance costs had risen to unprecedented levels, exceeding one-third of the value of the commodities being transported. This was making the movement of crude oil and petroleum products more difficult.

OPEC has also lowered its forecast for global oil demand growth this year to 400,000 barrels per day, down from 1.4 million barrels per day at the start of the year.

OPEC Secretary General Haitham Al Ghais announced the revised forecast on Monday, saying it reflected developments throughout the year.