Brent oil rises as Saudi Arabia suspends some shipments

[July 26, 2018]   By Shadia Nasralla

LONDON (Reuters) - Brent crude prices rose on Thursday after Saudi Arabia suspended its oil shipments through a Red Sea strait in response to an attack on two of the country's tankers.

Brent futures had risen 59 cents to $74.52 a barrel by 1008 GMT, extending their rally into a third day but falling from a 10-day high in earlier trading.

U.S. West Texas Intermediate (WTI) crude futures were up 6 cents at $69.36, hovering around Wednesday's closing level.

Saudi Arabia, the world's biggest oil exporter, said on Thursday that it was "temporarily halting" oil shipments through the Red Sea shipping lane of Bab al-Mandeb after an attack by Yemen's Iran-aligned Houthi movement.

Saudi Arabia has a major export terminal in Ras Tanura - also home to the country's largest refinery - on its eastern coast. The kingdom exports most of its crude on tankers passing through the Strait of Hormuz.

The path through Bab al-Mandeb links Saudi's eastern trade partners and Ras Tanura with the Red Sea port of Yanbu, the Suez Canal and the SUMED pipeline.

An estimated 4.8 million barrels per day (bpd) of crude oil and refined petroleum products flowed through this waterway in 2016 towards Europe, the United States and Asia, according to the U.S. Energy Information Administration.

But Saudi Arabia additionally has the Petroline, also known as the East-West Pipeline, which mainly transports crude from fields clustered in the east to Yanbu for export to Europe and North America.

The 5 million bpd Petroline could transport around 60 percent of Saudi oil exports.

Flames are seen at the production facility of Saudi Aramco's Shaybah oilfield in the Empty Quarter, Saudi Arabia May 22, 2018. REUTERS/Ahmed Jadallah/File Photo

Olivier Jakob from Petromatrix said in a note it remains to be seen whether the Saudi move has an impact on insurance rates and the willingness of ship operators to use that channel.

"The passage is not as crucial as the Strait of Hormuz ... but restricted flows through it would have an impact not just for crude but also for products due to the longer voyage time that is needed to sail by the Cape," he said.

WTI was initially supported by official data showing U.S. crude oil inventories last week tumbled more than expected to their lowest level since 2015.

PVM strategist Tamas Varga said the draw was not as bullish as it may seem given most of it came from the west coast, which is separated from the rest of the country by the Rocky Mountains and therefore no clear indicator of a broader U.S. draw.

The threat of a transatlantic trade war eased after talks between U.S. President Donald Trump and European Commission President Jean-Claude Juncker.

(Additional reporting by Aaron Sheldrick; Editing by Dale Hudson)

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