Oil futures moved lower on Tuesday as the prospect of additional Russian diesel exports weighed on prices, partially offsetting concerns about attacks on shipping routes and energy infrastructure in the Middle East.
Brent crude declined $1.62, or 1.52%, to $105.03 a barrel by 08:20 GMT. US West Texas Intermediate (WTI) fell $1.66, equivalent to 1.77%, to $92.08 a barrel.
Both benchmarks had risen by almost $2 a barrel on Monday, with Brent recording its highest settlement since 15 September.
The reversal followed an announcement from US President Donald Trump concerning Russian fuel supplies, raising expectations that more diesel could become available to international buyers.
However, uncertainty surrounding Russia’s refining capacity and continuing geopolitical risks limited confidence in a sustained improvement in supply conditions.
Russian Fuel Agreement Faces Production and Political Obstacles
Trump said Russia had agreed to provide diesel to global markets after his administration temporarily relaxed US sanctions affecting Russian fuel.
The sanctions were intended to restrict Moscow’s energy revenues during its military campaign against Ukraine.
Additional Russian exports could help ease shortages in international fuel markets, potentially reducing pressure on refined product prices and the broader crude oil market.
Nevertheless, analysts questioned whether Russia would be capable of delivering the proposed volumes.
Tamas Varga, an associate analyst at PVM Oil, highlighted the difficulties facing the country’s refining industry.
“Russia is unlikely to meet its pledge to supply 3 million to 3.5 million tonnes a month by year-end, given the serious problems affecting its refining sector,” Varga said.
The assessment suggests that operational constraints could limit the amount of diesel Russia can supply, regardless of changes to sanctions or export arrangements.
Political opposition in Washington has introduced another complication.
Lawmakers from both major US parties criticised the agreement between Trump and Russian President Vladimir Putin, arguing that it appeared inconsistent with legislation restricting Russian energy imports until Moscow ends its aggression against Ukraine.
The dispute raises questions about the legal and practical implementation of the arrangement.
Investors will therefore be monitoring whether the agreement results in actual increases in fuel shipments rather than relying solely on announced export targets.
Gulf Shipping Attacks Sustain Geopolitical Risk Premium
The potential expansion of Russian supply comes at a time when energy markets remain concerned about security conditions in the Middle East.
Iran-aligned Houthi forces reportedly struck Riyadh’s international airport over the weekend, while attacks involving tankers were also reported near the Strait of Hormuz.
The incidents heightened concerns about the vulnerability of energy infrastructure and maritime transport routes across the Gulf region.
The Strait of Hormuz is a major passage for international oil shipments, and disruptions can affect the movement of crude oil and refined products to global consumers.
Security threats can also increase shipping insurance premiums, freight charges and delivery times.
Varga said the absence of meaningful progress towards reducing tensions in Eastern Europe and the Middle East was keeping the geopolitical risk premium in crude oil prices elevated.
He also warned that increased attacks on commercial tankers and continuing tensions between Houthi forces and Saudi Arabia could prevent regional exports from returning to September’s elevated levels.
These risks complicate the outlook for global oil availability, particularly when shipping constraints prevent producers from delivering their output efficiently.
Transport and Insurance Expenses Reach Exceptional Levels
Ministers representing OPEC and non-OPEC producers involved in the Declaration of Cooperation reported a substantial increase in shipping and insurance costs.
According to the ministers, combined expenses have risen to unprecedented levels exceeding one-third of the value of the oil and petroleum products being transported.
The increase has created additional difficulties for the international movement of crude and refined fuels.
Even when producers have sufficient volumes available for export, high transportation costs can make shipments more expensive and reduce the efficiency of supply chains.
Importers may face higher delivered fuel costs despite declines in benchmark oil prices.
The pressure is particularly significant for routes exposed to military activity, attacks on commercial vessels or other security threats.
The situation demonstrates how maritime disruption can affect international energy prices independently of production levels.
OPEC Slashes Oil Demand Growth Estimate
In addition to supply developments, traders are assessing a weaker outlook for global oil consumption.
OPEC has lowered its forecast for demand growth this year to 400,000 barrels per day, compared with 1.4 million barrels per day at the beginning of the year.
Secretary General Haitham Al Ghais said on Monday that the reduction reflected developments throughout the year.
The revised estimate represents a decrease of one million barrels per day in anticipated demand growth.
Slower consumption growth could reduce upward pressure on oil prices, particularly if Russian diesel exports increase or other producers maintain sufficient supply.
However, the effect will depend on actual export volumes and the extent of any disruptions affecting energy shipments from the Middle East.
The downgrade also adds uncertainty to the outlook for producers seeking to balance supply against changing global demand conditions.
Oil Market Faces Competing Supply and Demand Pressures
Tuesday’s price decline highlighted the competing forces influencing international energy markets.
Expectations of additional Russian diesel exports offered some relief from concerns about tight fuel supplies, but doubts over refining capacity and political opposition in the United States remain unresolved.
Meanwhile, attacks on maritime transport and energy infrastructure in the Middle East continue to threaten the reliability of regional exports.
Higher shipping and insurance expenses could also restrict the movement of petroleum products, even where physical production remains available.
OPEC’s lower demand growth forecast adds a potentially bearish influence, suggesting that global consumption may expand more slowly than previously expected.
The direction of crude prices will depend on whether additional Russian supplies materialise, how security conditions develop around the Strait of Hormuz and whether global oil demand continues to weaken.
For now, the market remains exposed to rapid changes in supply expectations, geopolitical developments and international shipping conditions.
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