Escalating Middle East tensions amplify energy supply risks

Escalating Middle East conflict is tightening global oil and gas markets and is likely to keep energy prices elevated through the winter.

• Houthi attacks on Saudi airports, Saudi Aramco’s headquarters and the East-West Pipeline are increasing risks to regional supply, while at least 18 people have been killed and more than 300 injured in recent airport attacks.
• Dated Brent reached $130.52/bbl on October 13, after touching $135.74 on October 8, while physical crude inventories continue to fall despite higher Middle East exports and record tanker rates that are closing arbitrage routes.
• The proposed Russia-Ukraine diesel ceasefire is unlikely to ease US prices: global diesel exports were more than 900 kb/d below the prior year in Q3, Russian exports were down more than 400 kb/d, and Russian refinery runs fell to 3.4 mb/d in September, 1.3 mb/d below the prior year.
• European TTF gas prices exceeded €85/MWh, while storage was 74% full versus 83% last year and a five-year average of 89%; German storage was only 60% full versus 76% a year earlier.
• September LNG exports were 17% below January’s record, Qatar remained largely offline, and Europe imported nearly 14 bcm of Russian gas in the first nine months, about 12% of total LNG imports.

Takeaway: Investors should expect sustained upside pressure in oil and European gas, as low inventories, constrained LNG flows and geopolitical risks outweigh the limited and delayed effect of any Russian diesel deal.