Oil is knocking on the door of triple digits again. Brent crude climbed 2.4% to $98.68 a barrel early Tuesday and WTI rose 2.9% to $94.20 after a Houthi strike hit Saudi Aramco's Jazan refinery complex on Monday, following a weekend in which both sides hit ships and military positions around the Strait of Hormuz.
A direct hit on the Red Sea coast
The strike reached the 400,000-barrel-per-day refinery in Jizan province, on Saudi Arabia's southwestern coast a short drive from the Yemeni border. Damage crews were on site Monday, and early reports point to limited destruction. Aramco has not said whether the plant is still running at full rates.
The complex has become a favorite target. A drone set off a fire there on August 9, two days after Riyadh signed a new defense agreement with Turkey and Pakistan, and Yemen's Houthi movement claimed at least two more strikes on the site before the month was out. Houthi spokesman Yahya Saree has framed the strikes as retaliation for Saudi drones crossing into Yemen.
The refinery guarding Plan B
Jazan sits at the exposed end of Saudi Arabia's workaround. With tanker traffic through Hormuz squeezed since late February, the kingdom has been running its East-West pipeline at its limit, moving some 7 million barrels of crude per day from fields near the Gulf across the country to Yanbu on the Red Sea. By spring, loadings off the west coast had swelled to around 5 million barrels per day, several times the pace those terminals handled before the confrontation began.
That makes the Red Sea corridor precious, and increasingly contested. The Houthis declared a blockade of Saudi ports in July and have been fighting their way up Yemen's coast near Mocha, bringing more of the shoreline facing the shipping lanes under their control. A strike on Jazan does not touch the crude terminals further north at Yanbu. It does show the western corridor is within reach.
Traders eye $120
Goldman Sachs analysts have put $120 a barrel on the table should tanker strikes keep spreading. The strait itself is still functioning; close to 7 million barrels of crude and fuels make it through each day. Traders are also watching reports that Iran is working on an arrangement with Oman to manage traffic through the strait.
The rally has been building for over a week, since US strikes hit seven sites along Iran's southern coast. Brent last traded above $100 in late July, when Houthi attacks first opened the Red Sea front.
A refinery strike also lands hardest where the market hurts most: refined products. US diesel hit a record $5.85 a gallon last week, with distillate inventories at their lowest late-August level since 1982. Every barrel of refining capacity at risk tightens that math.
What to watch
Aramco has yet to publish a full damage assessment, and confirmation of any output loss at Jazan could add another leg to the rally. Beyond that, traders are watching whether the next strike lands closer to Yanbu, and whether the reported Iran-Oman shipping arrangement firms up into something markets can price.