Oil prices surged after a Houthi missile and drone strike on a Saudi military base and a subsequent aerial attack knocked out Saudi Arabia's East-West pipeline, its main route bypassing the Strait of Hormuz. The outage threatens roughly 4 per cent of global oil supply, with warnings that Saudi Arabia could run out of export stocks within five to seven days if the pipeline isn't restored.
Brent jumped above USD 109 per barrel for the first time since July, with WTI following closely behind. Saudi exports had already fallen to a three-decade low in August, down 23 per cent month-on-month. Diplomatic hopes for reopening the Strait faded after Gulf-Iran talks were postponed, and rhetoric between Washington and Tehran remained combative. Energy Aspects' Amrita Sen said inventory drawdowns had reached an "inflection point," while HSBC raised its 2026 Brent forecast to USD 90 per barrel.
On supply, US executives warned of a developing global fuel shortage as strategic reserves are depleted, with the pipeline attack removing an estimated 2.5 Mn bpd of export capacity. US diesel hit a record USD 6.23 per gallon. On demand, the IEA sharply revised its 2026 global demand forecast down to a 2.5 Mn bpd decline, citing the US-Iran negotiating impasse, with losses concentrated in Asian middle distillates. A modest 2.6 Mn bpd rebound is expected in 2027.
On the downstream side, refining margins hit record highs in August, pushing US refinery utilisation to 98 per cent nationally (103.5 per cent in the Midwest). Washington is considering invoking the Defense Production Act to expand refining capacity, partly to help process increased Venezuelan crude volumes destined for US refineries.