Oil prices surge as Iran deploys new tactics to target tankers

By Stephanie Kelly

LONDON, Oct 14 (Reuters) - Oil prices rose on Wednesday after an attack on the headquarters of Saudi Arabia's state-owned oil company, while Iranian officials told Reuters they were deploying new tactics to target ships, seeking to keep oil prices high and influence US midterm elections.

Brent crude futures were up 91 cents, or 0.9%, to $106.60 a barrel at 1110 GMT. US West Texas Intermediate crude was up $1.65, or 1.8%, to $95.79 a barrel, a more than two-week high. 

"Attacks on ships crossing the Strait of Hormuz and military strikes between Saudi Arabia and the Houthis are supporting prices as market participants remain concerned about lower oil exports from the region," said UBS analyst Giovanni Staunovo, adding that exports have held up so far.

Iranian officials declined to provide details of the new strategy to target ships, but one said that Iran had started to use different offensive tactics about 10 days ago.

"That Iranian officials are openly admitting to undermining US efforts to keep oil prices under control speaks volumes about the real intentions behind the so-called 'peace talks'," said Priyanka Sachdeva, head of market insights at Phillip Nova.

ATTACKS ON MULTIPLE FRONTS 

The Iran-allied Houthis attacked an administrative building belonging to state-owned oil company Saudi Aramco in the city of Dhahran, causing a limited fire, Saudi Arabia's energy ministry said on Wednesday.

The group has fired ballistic missiles and drones at Saudi Arabia over the past week in retaliation for the kingdom's support of Yemeni government forces. Riyadh's international airport has been hit four times, with a strike on Saturday killing 13 people.

Meanwhile, a container ship sank in waters south of the Strait of Hormuz after hitting a naval mine and catching fire, Iran's Revolutionary Guards Navy said in a statement shared by state media on Wednesday. This comes a day after the United Kingdom Maritime Trade Operations said a container ship and a tanker were hit by unknown projectiles within the strait.

"The expectation that increased Russian diesel exports will ease market tightness is likely to limit sharp price movement in either direction," said Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment. 

US President Donald Trump announced last Friday that Russia had agreed to supply ​diesel to global markets, and his administration temporarily lifted US sanctions on Russian fuel designed to deprive Moscow of revenue for its ‌war in Ukraine.

Russia's crude oil production increased by 65,000 barrels per day in September to 8.43 million bpd but remained 870,000 bpd down year on year, the International Energy Agency said on Wednesday. 

The IEA also said that a lack of operational Russian refinery capacity meant that the recently announced easing of Russian diesel export restrictions was unlikely to bring any material change to the global gasoil market balance.

Constrained diesel supplies could persist well into next year, the IEA also said. 

(Reporting by Stephanie Kelly in London, Yuka Obayashi in Tokyo and Emily Chow in Singapore. Editing by David Goodman and Mark Potter)