Escalating security risks in the Middle East are keeping oil markets on edge, with renewed attacks on Saudi Arabia and commercial vessels near the Strait of Hormuz, raising concerns over regional crude exports. The developments have overshadowed US President Donald Trump's announcement of additional Russian diesel supplies and a proposed Russia-Ukraine energy ceasefire.

Oil prices rose more than 2% on Oct. 12, with Brent climbing to $107/bbl and US West Texas Intermediate (WTI) reaching $93.7/bbl. Both benchmarks hit their highest levels since Sept. 29, reversing earlier losses.

The gains followed renewed attacks on Saudi Arabia and commercial shipping in the Gulf region. Yemen's Iran-aligned Houthi movement claimed responsibility for a Saturday strike on Riyadh's international airport, while additional attacks were reported Sunday. Separately, a tanker was struck by a drone near Sohar, Oman, and another vessel was damaged while transiting the Strait of Hormuz, according to the United Kingdom Maritime Trade Operations agency (UKMTO).

The incidents have renewed concerns over further disruption to shipping through the Strait of Hormuz, threatening the recovery in Middle East crude exports recorded in September.

Goldman Sachs raised its December Brent price forecast to $90/bbl from $85/bbl, citing an estimated geopolitical risk premium of slightly more than $20/bbl.

“We maintain our base case that continued adaptation of Mideast supply will eventually reduce crude oil prices, while potential renewed escalation still poses significant net upside risk,” Goldman Sachs said in a note Oct. 11.

Russian diesel deal, energy ceasefire

Trump announced on Oct. 9 an agreement with Russian President Vladimir Putin to increase diesel supplies to the US and international markets. Trump said Russia would initially supply more than 300,000 tonnes of diesel, followed by 500,000 tonnes in November and 1 million tonnes thereafter.

The US Treasury Department also authorized certain Russian diesel transactions under a temporary sanctions exemption. Moscow subsequently partially eased its diesel export restrictions on Oct.10, potentially allowing additional volumes to reach international markets.

The announcement initially weighed on refined-product prices. ICE gasoil futures fell 2.3%, while New York Harbor diesel futures declined about 4.5%, following news of the proposed supplies.

However, the agreement's impact on physical markets remains uncertain. Ukrainian attacks on Russian refineries have reduced processing capacity, while Russia has also faced domestic fuel-supply pressures. Actual export volumes will depend on refinery operations, available inventories, transportation arrangements, and implementation of the sanctions exemption.

The initial 300,000 tonnes represents about 2.25 million bbl of diesel. Although additional Russian supplies could ease some market tightness, their broader impact will depend on the volumes delivered and the duration of the arrangement.

Trump also announced that Russia and Ukraine had agreed to halt attacks on energy infrastructure. If implemented, the arrangement could reduce the risk of further damage to refineries and other energy installations, potentially supporting Russian fuel production and exports while limiting disruptions to Ukrainian energy infrastructure.

The proposal's outlook remains uncertain. Ukrainian President Volodymyr Zelenskiy accused Russia of violating the proposed ceasefire, while Russia had not publicly commented on the allegation.

"It is increasingly evident that Russia is unwilling to accept an energy ceasefire proposed by the US and intends to continue its terrorist air attacks against our people and communities," Zelenskiy said in Oct. 12 post on X.