Drone attacks on Saudi Arabia and Russia lift WTI above $97.50

• Energy supply disruption fears emerged immediately after drone attacks hit Saudi and Russian oil facilities.
• By striking Russian oil infrastructure with drones, Ukraine has signalled Kyiv’s intention to hinder Moscow’s diesel exports under the agreement between Trump and Putin.
• Higher exports from the Middle East and forthcoming Russian diesel deliveries could limit further oil price gains.

At around $97.70 in Thursday’s Asian trading, West Texas Intermediate (WTI) oil is ending a three-day run of losses. The rise in crude prices followed a drone strike on Saudi Aramco’s Shaybah oil field, which caused two casualties. Concerns over possible disruption to energy supplies have grown as the attack has heightened geopolitical tensions in the Middle East. With security risks increasing, the United States (US) has instructed selected personnel and family members to leave American embassies in Saudi Arabia.

Beyond the Middle East, geopolitical hostilities are also affecting global energy markets. Large-scale drone strikes launched by Ukraine this week targeted Russia’s critical oil infrastructure, signalling Kyiv’s determination to undermine Moscow’s capacity to increase diesel exports under the recent agreement between Presidents Trump and Putin.

A 7.9% rise in Saudi Arabia’s crude exports in August took them to their highest level since March, underscoring how Middle Eastern export flows are approaching pre-war levels. This expanding supply from major producers could restrain further oil price increases despite concerns about supply threats. Russia is also expected to deliver its first diesel shipment to the United States on Thursday, adding further to supplies on the global market.

Even as wider markets continue to readjust, Brent crude prices are "holding on to recent gains near $110 a barrel," according to strategists at Brown Brothers Harriman. Their assessment that "bond yields are edging higher while stocks are extending their recovery," draws particular attention to Europe, where the "French 10-year bond yield premium over Germany is closing in on a 24-year high." Turning to currencies, BBH notes that the "USD is mixed just above yesterday’s lows, with interest rate differentials supportive of the currency." Meanwhile, Rabobank contends that the "full-fat Pax Americana being over portends more Middle East instability ahead," lending weight to the view that shifting geopolitical conditions could maintain an elevated risk premium across oil-linked assets.