Oil holds near multi-year highs as pipeline fire reports swirl; Asia stocks fall

Key points:

• Unverified reports of a Houthi strike on Saudi Arabia's East-West pipeline near Medina have emerged, citing satellite imagery that shows fire hotspots at multiple points along the route. No confirmation has come from Aramco, Saudi authorities or wire services as yet.
• Oil prices stayed close to Thursday's multi-year peaks.
• The pipeline, known as Petroline, is Saudi Arabia's primary export channel bypassing the closed Strait of Hormuz, carrying crude about 1,200 kilometres from the Eastern Province to the Red Sea port of Yanbu. A confirmed attack in April cut throughput by roughly 700,000 barrels per day.
• The US 10-year Treasury yield rose above 4.97%, the highest since October 2023 and near that year's peak.
• Gold edged lower, moving toward $4,300.
• Japan's corporate goods price index climbed 7.6% year on year in August, above the 7.4% forecast, reinforcing expectations the Bank of Japan will raise rates to 1.25% at next week's meeting.
• Asia-Pacific equities fell broadly at the open, with the Nikkei down nearly 3% and the Kospi down around 2.5%, as surging oil and rising yields weighed on risk sentiment amid the widening Iran war.

Oil prices held near Thursday's multi-year highs on Friday, driven by satellite imagery that reportedly showed 'catstrophic' (according to some reports) fire hotspots along Saudi Arabia's East-West pipeline, fuelling unverified reports of a Houthi strike on the route. Open-source researchers cited a comparison of Sentinel-3 satellite passes from September 9 and 10, which appeared to show a large smoke plume and an elevated thermal signature near the pipeline close to Medina, with multiple hotspots detected along the route at roughly the same time. As of writing, no confirmation of the reported strike had come from Saudi Aramco, Saudi authorities or established wire services, and the claims should be treated as unverified pending official comment.

The pipeline, known as Petroline, is among Saudi Arabia's main alternatives to the Strait of Hormuz, transporting crude about 1,200 kilometres from the Eastern Province to the Red Sea port of Yanbu. It has a stated capacity of up to seven million barrels per day, with about five million barrels per day used for direct export and a further two million barrels per day sent to refineries for processing. The route has been targeted before, including a confirmed attack in April that cut throughput by an estimated 700,000 barrels per day. If the latest reports are verified and shown to have significantly disabled sections of the pipeline, market participants widely view this as an event capable of materially disrupting Saudi export capacity, given the route's role as the kingdom's principal bypass for the closed Strait of Hormuz amid the ongoing Iran war.

Elsewhere in markets, the US 10-year Treasury yield extended its rise above 4.97%, its highest since October 2023 and approaching that year's peak. Gold drifted lower, slipping toward $4,300. Data released Friday showed Japan's corporate goods price index rose 7.6% year on year in August, ahead of the 7.4% forecast, with import prices up 24.8% on continued yen weakness. The reading reinforces market expectations that the Bank of Japan will raise its policy rate to 1.25% at next week's meeting, a move markets had already largely priced in.

Asia-Pacific equities fell broadly at the open as the combination of surging oil prices, rising bond yields and the widening Iran war, including concerns over shipping through the Bab al-Mandab Strait, weighed on risk sentiment. Japan's Nikkei was down nearly 3% and South Korea's Kospi fell around 2.5% in early trading, extending losses tied to the broader geopolitical and inflation-driven pressure building across markets this week.