Diesel sets US record $6.23 a gallon amid Middle East supply disruption
Saudi Arabia closed the 746-mile East-West pipeline, known as the Petroline, after a drone attack, and Brent crude briefly rose above $110 a barrel on Monday before retreating to $108.42, up almost 4% on the day, according to United Press International. American crude for October delivery jumped more than $3.30 a barrel to $103 and was trading at $103.37 a barrel in mid-afternoon trade in London.
The pipeline, closed since Friday after a drone attack, had allowed Saudi Arabia an alternate route to move oil from production facilities on the Persian Gulf side of the country across the Arabian Peninsula to the Red Sea port of Yanbu, sidestepping the Strait of Hormuz. Iran has effectively closed the strait to shipping, leaving Saudi Arabia with no direct overland alternative while the Petroline remains offline.
U.S. Energy Secretary Chris Wright said he was liaising with the Saudi energy minister and was confident the pipeline would reopen “very soon,” though he acknowledged he could not provide a more precise timetable. “They’ve been very carefully assessing what the damage was, what needs to be done, and I think more clarity on that will come out very soon,” Wright said.
Analysts at Lloyds Bank said uncertainty about how long the pipeline would be offline was the main driver of the “knock-on consequences for global supply and energy prices.”
A meeting between Iran and Gulf countries against whom it has launched airborne attacks in recent months was called off Sunday with no date for when it might be rescheduled.
The pipeline shutdown comes alongside reported Houthi rebel gains in the southern Red Sea. According to UPI, freedom of movement through maritime trade routes in the region could be further affected by the reported Houthi seizure of Perim Island, which guards the entrance to the Bab al-Mandab Strait, and the port of Mokha further up the Yemen coast.
The disruption is feeding through to U.S. consumers. AAA data showed diesel hit a record $6.23 a gallon on Monday, while the national average price of a gallon of regular unleaded rose to $4.31 — up 45% since the start of the conflict Feb. 28, UPI reported, noting that retail price movements typically lag changes in crude costs by several days.
KPMG warned that the high cost of energy, diesel in particular, would feed into an “inflationary problem” that would endure for many months.
Brent is now trading roughly 50% higher than before the war began on the last day of February, UPI reported.