Crude oil prices fell on Wednesday after an unexpected rise in US crude inventories, although concerns over supply disruptions in Saudi Arabia kept prices elevated.
Brent crude futures declined 93 cents, or 0.86 per cent, to USD 107.82 a barrel, while US West Texas Intermediate (WTI) futures fell 97 cents, or 0.92 per cent, to USD 104.86 a barrel at 0028 GMT.
Both benchmarks had settled more than USD 3 higher on Tuesday and at their highest levels since May 19 after Saudi Arabia suspended oil loadings at the Yanbu port following an attack on its East-West pipeline.
The latest movement in crude prices comes at a time when investors are also assessing the impact of higher oil prices on inflation, interest rates, currencies and equity markets ahead of the US Federal Reserve’s policy decision.
Saudi pipeline disruption raises supply concerns
Saudi Arabia suspended oil loadings at its Yanbu port after shutting the East-West pipeline following an attack by Yemen’s Iran-aligned Houthis, according to sources.
The pipeline is important for Saudi Arabia as it allows the world’s biggest crude exporter to transport oil to the Red Sea while bypassing the Strait of Hormuz. Saudi Arabia has used the pipeline to reroute around 4 million barrels per day, or about 4 per cent of global oil supply.
The disruption has therefore raised concerns about the availability of crude in the international market.
The US energy secretary has said crude flows through Saudi Arabia’s vital East-West pipeline should resume within days. However, the duration of the disruption remains an important factor for oil prices.
Senior Oil Analyst at Sparta Commodities Abhishek Kumar said Brent could move to USD 120-125 a barrel if supply disruptions in the Middle East continue.
“The next target would be USD 120, USD 125 if this continues,” Kumar told ANI.
He said the affected infrastructure could remove close to 4 per cent of global supply from the market and keep crude prices elevated.
Why crude could move towards $120-125
Kumar said the immediate supply buffer from the affected infrastructure could last around five to seven days, while repairs to the damage could take a couple of weeks.
If the disruption continues for four weeks, the market could face a supply shortfall of around 3-4 million barrels per day, he said.
Saudi Arabia could use the Strait of Hormuz as an alternative route, but Kumar said risks and limited availability of very large crude carriers could make it difficult to move additional crude through the route.
VLCC freight rates have risen to close to USD 1 million per day, according to Kumar. He also said the crude market was already tight because strategic petroleum reserves and commercial inventories were low. The pressure is not limited to crude, with refined products such as diesel also facing supply constraints.
Kumar said fuel prices have risen sharply across several markets. US retail diesel prices have increased by nearly 60 per cent, while prices in the European Union and the UK have risen 30-40 per cent. Some Asian countries have seen diesel prices rise by more than 70 per cent.
High crude prices may hurt demand
While supply disruptions can push crude prices higher, prolonged high prices can also affect consumption. Kumar said demand destruction could emerge even around current oil price levels if elevated prices continue for a longer period.
“We are talking about demand destruction around 100, even around the current level,” he said.
This means that while a supply shock can initially push prices higher, sustained expensive crude can eventually force consumers and businesses to reduce fuel consumption.
The situation is also important for refined products. Kumar said the market was tight not only from the crude perspective but also in products, particularly diesel.
Any further disruption to refinery operations in the region could add to pressure on diesel supplies in Europe, he said.
What higher crude means for India
Higher crude prices are also a concern for India because the country imports a large part of its oil requirement.
A Motilal Oswal report said India’s external sector remained resilient, with August 2026 merchandise exports rising 26.1 per cent year-on-year. It said the strong services surplus and remittance inflows should provide a cushion to the external account.
However, the report identified crude oil prices as a key monitorable after the recent escalation in the Middle East.
Brent crude had risen from around USD 98 a barrel at the beginning of the previous week to above USD 108 a barrel. Motilal Oswal has assumed crude oil at USD 90 a barrel for FY27 and estimated India’s current account deficit at 1.4 per cent of GDP, or around USD 56 billion.
The report said if crude remains above USD 90 a barrel for a major part of FY27, the current account deficit could widen towards 1.7 per cent of GDP, or around USD 71 billion, mainly because of a higher oil import bill.
It also retained its FY27 USD-INR forecast at 95, while noting that risks could increase for the rupee if crude prices remain elevated and global bond yields stay higher for longer.
Fed decision and global markets in focus
Crude prices are also adding to uncertainty for global financial markets ahead of the US Federal Reserve’s interest rate decision. International market expert Ajay Bagga said the physical oil market remained disrupted, with some contracted cargoes not being delivered.
“Oil is still in disruption. Saudi Arabia did not deliver several contracted cargoes yesterday and has imposed force majeure,” Bagga said.
He said physical crude prices were showing greater stress than benchmark prices. According to Bagga, some European buyers picked up cargoes at around USD 130 a barrel, while Brent was trading around USD 108.
Bagga also pointed to diplomatic efforts involving Iran and China, saying Iran’s foreign minister had travelled to China and that there was some hope that China could mediate. However, he said further attacks could worsen the situation considerably.
On financial markets, Bagga said investors had already factored in a significant part of the expected US Fed decision. He said the combination of higher oil prices and tighter monetary policy remained a risk for global markets.
Crude oil prices history
Crude oil prices have risen sharply over the past week amid concerns over supply disruptions in the Middle East. Brent crude is currently trading at around USD 107.78 a barrel, up 8.57 per cent or USD 8.51 in one week.
US WTI crude is at around USD 104.66 a barrel, marking an increase of 11 per cent or USD 10.38 over the same period. Brent is also up 18.53 per cent over the period shown, while WTI has gained 23.64 per cent.
