Oil Prices Rise Following Saudi Attacks and Growing Diesel Supply Risks

Oil prices moved higher Tuesday following attacks on Saudi Arabian energy facilities and growing concerns over global diesel supplies. WTI gained more than $2/bbl in morning trading to roughly $94/bbl after reaching an intraday high near $95/bbl. Brent followed higher, trading near $99/bbl after briefly approaching $100/bbl. The latest move extends last week’s gains as disruptions across the Middle East, restricted traffic through the Strait of Hormuz and tight refined-product supplies contribute to higher crude prices.

The rally followed attacks by Iran-backed Houthis on Saudi energy infrastructure, including the 400,000 bpd Jazan refinery, where operations were halted. The attacks increased concerns over regional supply disruptions following U.S. strikes on Iranian oil tankers near Kharg Island, Iran’s primary oil export hub, and continued shipping delays through the Strait of Hormuz. Saudi Arabia said it would take measures in response, raising the possibility of additional escalation across the region.

Iran has also said an agreement with Oman to manage shipping through the Strait of Hormuz is nearing completion and could establish a temporary safe route through the waterway. While such an agreement could improve crude flows, shipping volumes remain below normal and physical supply constraints continue to limit exports from the region.

Middle Eastern producers are increasingly adapting to the disruption. Kuwait is exporting roughly 1 Mbpd of crude, recovering nearly two-thirds of its average 2025 export volume of 1.6 Mbpd through ship-to-ship transfers outside the Strait of Hormuz. Iraq, meanwhile, continues to face challenges attracting buyers willing to collect crude from inside the Persian Gulf after reducing discounts on Basrah Medium and Heavy crude by $9-$10/bbl compared with August.

Goldman Sachs raised its December 2026 price forecasts by $5/bbl, citing expectations that Middle East shipping disruptions could continue into 2027. The bank now forecasts WTI at $80/bbl and Brent at $85/bbl by year-end. Alternative shipping routes and infrastructure investments could gradually restore regional production and export volumes, but current disruptions continue to constrain supply.

Diesel Prices Reach Record Highs

While crude prices continue to climb, diesel remains the more immediate concern for fuel consumers. The AAA national average retail diesel price reached a record $5.85/gal Friday, surpassing the previous high of $5.82/gal set in June 2022. Retail diesel has increased roughly $2.10/gal since the Friday before military action against Iran began in March.

The increase reflects a combination of constrained Middle Eastern supplies and reduced Russian refining output. Ukrainian drone strikes have disrupted Russia’s refining sector, which is heavily oriented toward middle-distillate production, while restricted flows through the Strait of Hormuz have limited additional supply from the Middle East.

U.S. refineries continue operating at high utilization rates, but limited spare global refining capacity means additional production cannot quickly offset supply disruptions. Diesel futures have eased from recent highs, with ULSD trading near $4.47/gal Friday after approaching $4.70/gal earlier in the week. That pullback could eventually slow increases at the pump, but physical diesel supplies remain tight heading into the winter demand season.

For fuel buyers, crude prices remain heavily tied to developments in the Middle East, while diesel markets continue to face limited global refining capacity. Any improvement in Strait of Hormuz shipping conditions would be bearish for both crude and refined products, but additional disruptions could keep diesel prices elevated as winter demand approaches.