Oil falls as Russia diesel supply prospects counter Gulf supply risks

By Anjana Anil and Trixie Yap

Oct 12 (Reuters) - Oil prices fell on Tuesday and were on track for their first decline in nearly a week, as traders assessed supply risks from attacks on Saudi Arabia while weighing the prospect of additional diesel supplies from Russia.

Brent crude futures fell $1.30, or 1.2%, to $105.35 a barrel by 0329 GMT, while US West Texas Intermediate crude futures were down $1.25, or 1.3%, at $92.49 a barrel.

Both benchmarks climbed nearly $2 a barrel in the previous session, with Brent settling at its highest since September 15.

US President Donald Trump said 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 on Ukraine.

Additional supplies could help alleviate tightness in global fuel markets, tempering some of the supply concerns that have supported crude prices recently.

However, "there is considerable scepticism over the Russia-Ukraine energy ceasefire, particularly with reports that Russia has hit Ukrainian energy targets since Trump announced it," ING analysts said in a note.

Lawmakers from both parties in the US complained Trump's agreement with Putin appears to violate US law barring imports of Russian energy until Moscow ends its aggression against Ukraine.

Concerns over the vulnerability of Gulf energy infrastructure and shipping lanes remained in focus after Iran-aligned Houthis struck Riyadh's international airport over the weekend, while tanker attacks were reported near the Strait of Hormuz.

The incidents threatened to derail a recovery in Middle East supplies seen in September, and have reinforced fears of further disruptions along one of the world's most important energy transit routes.

"Fresh diesel supply from Russia and steadier Saudi flows are offering some relief, yet the market still looks more worried about the risk of further hits to ships or pipelines in the Gulf than it is reassured by extra barrels," said Tim Waterer, chief analyst at KCM Trade.

"Until we see clearer signs of de-escalation, the path of least resistance still leans higher," he said.

Ministers of OPEC and non-OPEC Participating Countries in the Declaration of Cooperation said shipping and insurance costs have surged to unprecedented levels of over one-third of the commodity value, impeding efficient movement of crude oil and products.

OPEC has revised down its oil demand growth forecast for this year to 400,000 barrels per day from 1.4 million bpd at the start of the year, in line with developments throughout the year, Haitham Al Ghais, Secretary General of the organisation said on Monday.  

(Reporting by Anjana Anil in Bengaluru and Trixie Yap in Singapore; Editing by Sonali Paul)