Oil slips as Saudi Arabia offers more crude via Oman; diesel near record high

By Anushree Mukherjee

Sept 16 (Reuters) - Oil prices fell on Wednesday as reports that Saudi Arabia was offering additional crude cargoes via Oman eased concerns about the scale of Middle East supply disruptions, while European diesel prices hovered near a record high.

Brent crude futures were down 59 cents, or 0.54%, to $108.16 a barrel at 0926 GMT, while U.S. West Texas Intermediate futures were down $1.20, or 1.13%, at $104.63 a barrel.

In the previous session, oil prices settled more than $3 higher after shipping industry sources said crude loadings at Saudi Arabia's Red Sea export hub of Yanbu had been suspended and Riyadh had cancelled some cargo deliveries to European customers, deepening concerns that disruptions to a critical export route could persist for weeks.

However, Saudi Arabia is offering more loadings of crude oil to Asian refiners via ship-to-ship transfer off Oman's Sohar port after drone attacks damaged its key oil pipeline to the Red Sea, people familiar with the matter said.

"News around Saudi Arabia exporting from the Gulf suggests concerns that the disruption could be larger are easing," said UBS analyst Giovanni Staunovo.

Visible vessel transits through the Strait of Hormuz remained in the single digits at four on Tuesday, down from seven a day earlier, preliminary shipping data showed on Wednesday. That was well below the 10-day average of 18.

The waterway handled a fifth of the world's oil and liquefied natural gas supply before the U.S.-Israeli war on Iran began in late February. 

Macquarie analysts said flows of crude, condensate and refined products through the Strait of Hormuz had remained resilient despite escalating hostilities in the region and may have risen to more than 7.5 million barrels per day since fighting resumed on August 30. They said the link between developments in the strait and oil flows had weakened.

Citi expects near-term escalation in the Middle East to continue supporting crude oil and refined fuel prices before the Strait of Hormuz eventually reopens in the fourth quarter of 2026 with support from regional diplomatic efforts, the bank said in a note.

DIESEL TIGHTNESS PERSISTS

"Diesel's strength reflects a product-specific shortage layered on top of expensive crude," Frank Walbaum, market analyst at Naga.com.

"Europe has lost substantial diesel and jet-fuel supply from the Middle East, while ongoing tensions in Eastern Europe have disrupted output at several major Russian refineries and prompted Moscow to restrict fuel exports."

European gasoil futures , a benchmark for diesel prices, settled at a record high and rose to their highest intraday level since April on Tuesday, underscoring tightness in fuel markets as Middle East disruptions constrained crude and product flows.

Last week, the U.S. national average price of diesel surpassed $6 a gallon for the first time ever.

U.S. INVENTORIES WEIGH

Separately, U.S. crude oil, gasoline and distillate inventories all rose last week, market sources said on Tuesday, citing data from the American Petroleum Institute.

Crude inventories rose by 7.1 million barrels in the week ended September 11, the sources said, citing API data. That compared with analysts' expectations for a draw of about 1.6 million barrels, according to a Reuters poll.

API's data showed unexpected increases in gasoline and diesel inventories have weighed on prices, but regional stock increases do not change the underlying tightness in the global crude market, Haitong Futures said in a note.

(Reporting by Sam Li in Beijing and Siyi Liu in Singapore, Anushree Mukherjee in Bengaluru. Editing by Thomas Derpinghaus, Mark Potter and Louise Heavens)