Oil Slips As U.S. Crude Stockpiles Rise, Traders Weigh Saudi Pipeline Closure

Oil prices fell on Wednesday as traders weighed an unexpected increase in U.S. crude inventories against supply worries after an Iran-backed attack on Saudi Arabia’s East-West pipeline.

U.S. crude oil, gasoline and distillate inventories all rose last week, according to Reuters. The American Petroleum Institute data, cited by Reuters, showed crude inventories rose by 7.1 million barrels in the week ended Sept. 11, against analysts’ expectations for a draw of about 1.6 million barrels.

Inventories Surprise The Market

The build in U.S. stockpiles gave traders a bearish signal. Reuters reported that crude, gasoline and distillate inventories all increased last week. That rise clashed with expectations for a draw of about 1.6 million barrels, a sign that near-term supply is comfortable even as geopolitical risk remains high.

Oil retreated Wednesday after the report said U.S. energy inventories rose last week. Investors are also assessing the latest developments in the Middle East conflict and the supply risks tied to it.

Saudi Pipeline Closure In Focus

Traders remain glued to events in the Middle East. An attack by Iran on Saudi Arabia’s crucial East-West pipeline led to its closure over the weekend. The pipeline is a key outlet for Saudi crude, and any prolonged outage can tighten global supply.

U.S. Energy Secretary Chris Wright told CNBC in an interview on Tuesday that the closure was a brief interruption that will last days. Andy Lipow, president of Lipow Oil Associates, said in a note on Monday that “judging from the on-line pictures, it will take months to repair.”

Pentagon Costs And The Market Outlook

The financial cost of the Middle East conflict is also being watched. According to a report released Tuesday by the nonpartisan Congressional Budget Office, the U.S. war with Iran has cost the Pentagon an estimated $38.1 billion through Aug. 1. It could lead to another $2 billion to $3 billion being spent for each additional month of fighting.

“Looking ahead, crude is likely to remain closely tied to security conditions along Gulf export routes and the pace of repairs to Saudi infrastructure,” said Joseph Dahrieh, managing director at brokerage Tickmill.

“Any further disruption to maritime flows or a prolonged pipeline outage could tighten the physical market and extend the advance in prices,” Dahrieh added.

What It Means For Nigeria

For Nigeria, the oil market is a double-edged signal. A supply-driven rally can lift crude prices and support dollar earnings, which matters for the naira and the budget. But if the Saudi outage ends quickly and U.S. inventories keep rising, crude could give back gains, weakening the outlook for oil revenue.