Oil Maintains Gains as Middle East Disruptions Loom, Goldman Sees Fed Hike

Overview:

• The week began with oil prices gapping up and staying elevated, as the Middle East unrest kept global energy supplies under threat.
• After last week's attack, Saudi Arabia's East-West pipeline is still closed. Citing internal sources, initial reports described catastrophic damage to the pumping infrastructure at no fewer than eight sites and said repairs would take well over a month because of a lack of spare parts.
• Three industry sources told Reuters that Saudi Arabia set to run out of crude oil available for export within five to seven days, potentially removing around 4 million barrels per day,r roughly 4% of global supply, from the market./li>
• The meeting of Persian Gulf foreign ministers, at which Iran was expected to officially present a deal for a temporary Hormuz shipping lane, been postponed by Oman.
• Gold was trading near $4,340 for the session, while the US dollar edged up slightly.
• US equity index futures opened with a gap down and traded under pressure. Analysts cited reports that Anthropic and OpenAI have been discussing how to pace AI development as a factor dragging on sentiment.
• Japan's Nikkei dropped about 1% and South Korea’s KOSPI slid about 2%. China's major indices were mixed: the Shanghai Composite gained 0.16%, the Shenzhen Component fell 0.25%, and the ChiNext lost 0.47%.
• Goldman Sachs abandoned its forecast for no rate change at the Federal Open Market Committee meeting on September 15-16, and now expects a 25-basis-point hike, which it calls a likely “one and done” move that should not weigh heavily on equities.

The trading week started with oil prices gapping up and remaining higher through the session, as the Middle East conflict kept pressuring the global energy supply outlook. This came after confirmation that Saudi Arabia’s East-West pipeline stayed shut after last week’s attack. Separately, Oman pushed back a scheduled meeting of Persian Gulf foreign ministers where Iran was expected to officially reveal a temporary Hormuz shipping lane deal.

Sources inside Saudi Arabia told initial reports that the pipeline’s pumping infrastructure was catastrophically damaged, with hits at least eight locations along the pipe. They also said repairs will take considerably longer than a month because of a shortage of spare parts. Additionally, three industry sources informed Reuters that the outage will leave Saudi Arabia to run out crude oil for export within five to seven days. That development could remove about 4 million barrels daily, roughly 4% of global supply, from the market.

US Energy Secretary Chris Wright cautioned against expecting a quick resolution over the Strait of Hormuz, despite Iran being ready to propose a passage deal to other Gulf countries. Speaking on Sunday, he stated that assuming Iran and its neighbors will soonreache a consensual agreement is not safe. He added that for now, markets should continue to depend on current workarounds, which he estimates are still transporting about 10 million barrels a day of crude and refined products.

Gold was around $4,340 for the session, and the US dollar edged up slightly. US equity index futures gapped down and traded under pressure all session. Analysts partly attributed the softer risk appetite to recent reports that Anthropic and Open AI have been in talks about pacing AI development, following weekend public comments from executives at both firms.

Asian equity markets were uneven, with a weak tone. Japan’s Nikkei fell about 1% and South Korea’s KOSPI dropped roughly 2%. Mainland Chinese indices were more balanced: the Shanghai Composite rose 0.16%, the Shenzhen Component fell 0.25%, and the ChiNext declined 0.47%.

Goldman Sachs has dropped its prediction of no rate change at the Federal Open Market Committee meeting set for September 15-16, and now forecasts a 25-basis-point increase. The bank called it a likely “one and done” move, and said it does not anticipate that the decision will place heavy pressure on equity markets.