Oil prices climb amid Libya force majeure warning, Saudi Arabia pipeline outage

Oil prices climbed on Tuesday after Libya’s National Oil Corporation (NOC) said operations were suspended at three oil fields, adding to concerns around disruptions to crude supplies through a key pipeline in Saudi Arabia. 

By 09:45 ET (13:45 GMT), benchmark Brent crude futures had gained 1.7% to $107.59 a barrel, while West Texas Intermediate crude futures advanced by 2.2% to $103.59 a barrel.

The NOC said members of the Petroleum Facilities Guard, which is responsible for securing Libya’s oil sites, closed a vale on the vital hamada-Zawiya crude-loading pipeline, Reuters reported. The NOC may declare force majeure should the value remain closed or other fields are shut down, the news agency added.

Oil output in Libya has been cut off for political or technical reasons repeatedly since an uprising against the country’s former leader Muammar Gaddafi in 2011.

Saudi pipeline closure in focus

Beyond Libya, concerns surrounded violence in the Gulf that has caused the outage of a vital crude pipeline spanning across Saudi Arabia. Iran-backed Houthi militants in Yemen carried out a fresh wave of attacks on Saudi Arabia and were pushing to strengthen their positions in key areas along the Red Sea, Reuters reported on Tuesday, citing Yemeni officials.

The news agency added that authorities in Riyadh were considering how best to respond to the Houthi’s rapid drive through parts of Yemen. Saudi officials sounded emergency alarms at a military airbase in Khamis Mushait in southern Saudi Arabia following a series of drone and missile attacks there by the Houthis.

Critically for global crude supplies, the Houthis have struck a key east-west Saudi oil pipeline which has been a major conduit for oil flows in the wake of Iran’s effective shuttering of the Strait of Hormuz.

Citing two regional officials, The Associated Press said the 1,200-kilometer long pipeline will be offline for between three to five weeks while the damage, including at a crucial pumping station, is repaired. The AP added that the pipeline may be in partial use during the repairs, but it was not certain how much oil would be flowing.

The Houthis attacked several targets in Saudi Arabia on Monday, further threatening the country’s oil exports after strikes last week took Riyadh’s east-west pipeline offline. The offensive opened up a new front in the Middle Eastern conflict, with analysts estimating an additional 4% to 5% of global supplies could be disrupted. 

Since late August, an average of 2.6 million to 4 million barrels per day of oil were getting through the pipeline. Traders have suggested that a prolonged shutdown of the pipeline could disrupt as much as 4% of global oil supply, Reuters reported.

"Oil prices remain firmly supported, with that floor unlikely to give way until markets get clearer visibility on Saudi supply after the east–west pipeline shutdown," analysts at ING said in a note.

Hopes for a diplomatic resolution to cool tensions in the Middle East have waned in recent days. A meeting between Iran and Gulf countries in Oman over the Strait of Hormuz was delayed after it was initially slated to take place on Monday, with Tehran suggesting that the postponement came at the request of Saudi Arabia. U.S. President Donald Trump has also reiterated a claim that Iran is keen to make a deal to cease hostilities, although that has been rebuffed by Iranian officials.