Saudi Output Collapse Drives Oil Prices to Near $110/bbl
Oil prices surged sharply due to escalating Middle East tensions and Saudi Arabia's steep drop in output. According to ING analysts Warren Patterson and Ewa Manthey, rising risks to Saudi energy infrastructure and Red Sea exports are supporting oil markets. The analysts note that Brent has rallied more than 6% as prices neared $110/bbl.
The market is now repricing the duration and severity of the conflict, with a clearer recognition of the threat to regional supply. While meaningful volumes are still moving through the Strait of Hormuz, flows remain well below pre-war levels. Saudi energy infrastructure and crude oil exports from the Red Sea are increasingly at risk, particularly with the Houthis in Yemen targeting Saudi Arabia.
Recent events have increased the threat to shipping around the Bab al-Mandeb Strait, where the Houthis have taken control of the Red Sea port of Mokha in Yemen. The analysts highlight that Saudi Arabia's August production numbers reported to OPEC show a 6.24m b/d output, the lowest level since the 90's.
However, this coincides with stronger Chinese buying in the physical market, as independent refineries in China have been steadily increasing run rates after bottoming in July. Data from JLC shows independent refiners running at almost 63%, up from 45% in July.