Oil rises as Russia hits Ukraine and Saudi vows Houthi retaliation

Crude now carries a geopolitical premium from two fronts, as traders assess the risk that direct US action against the Houthis expands the conflict near Gulf export routes. The Saudi pipeline expansion, scheduled over multiple years, implies the kingdom will have limited ability to reroute or replace disrupted flows, underpinning the tight-supply story. For products, additional Russian diesel could relieve pressure on middle distillates, but Ukraine's threat of winter retaliation leaves energy infrastructure risk on both sides. With no progress in US-Iran talks, the oil risk premium has little near-term relief.

Monday saw the writer express despair over the weak narrative backing gold. And indeed gold is now significantly lower. That same narrative also served to 'explain' oil's decline, but it was equally flawed.

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As a trader, the writer is not troubled by flawed narratives; in fact, they are welcome because they create liquidity for more rational thinkers. However, in his daily role at investingLive, he is bothered by such narratives, part of his job being to help traders understand markets. That led to his post yesterday arguing that gold's rise was built on weak foundations:

• Gold rises in Asia on energy truce story, which appears highly fragile

The writer hopes it benefited some investingLive traders. It was not exactly rocket science.

The writer is now posting a catch-up, a recap of Monday's oil move.

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Crude obtained support from two directions: the fragile Russia-Ukraine energy truce broke down and Saudi Arabia prepared retaliation against the Houthis, while talk of Russian diesel only temporarily reduced the pressure.

Key points:

• WTI and Brent moved higher through Monday's session driven by Middle East and Russia-Ukraine tensions, then eased a bit from highs at settlement.
• Zelenksy stated that Russia attacked Ukraine after Trump's US-Russia energy deal announcement, accusing Moscow of breaching the energy ceasefire, and warned that Ukraine will respond in winter if no energy truce; power outages occurred in eastern Ukraine after Russian strikes.
• Russia's Novak mentioned that the two governments are discussing supply, noted potential for additional diesel on global markets, and said exports could reach 3 to 3.5 million tons by year-end.
• Saudi Arabia's energy minister promised a serious response to deadly Houthi attacks on oil and gas facilities, and Trump said he would decide whether the US joins Saudi strikes on the group.
• Aramco's CEO warned that global crude supply remains very tight, and the Saudi Energy Ministry expects pipeline capacity expansion to 10 million bpd will take two to three years.
• Iran said it continues to exchange messages with the US via intermediaries; Washington reportedly accepted some of Teharn's seven conditions through Qatar, which Iran sees as insufficient.

Oil prices increased on Monday as fresh uncertainty in the Middle East and rising tensions between Russia and Ukraine pushed both WTI and Brent higher during the session, with a slight retreat from highs at settlement.

Regarding Russia-Ukraine, US President Donald Trump announced a US-Russia energy deal on Friday after oil had settled, and followed with aggressive statements over the weekend. Ukrainian President Volodymyr Zelensky said Monday that Russia attacked Ukraine after Trump's announcement, accusing Moscow of breaching the energy ceasefire linked to Trump. He warned Ukraine would retaliate in winter if Russia does not agree to an energy ceasefire. Power outages were reported overnight in eastern Ukraine after Russian strikes, despite the deal's announcement.

Crude's later retreat from session highs aligned with Novak's comments on a diesel supply arrangement tied to Trump. Novak said the Russian and US governments are negotiating supply, and Russia has capacity to offer additional diesel on global markets, with exports potentially reaching 3 to 3.5 million tons by year-end.

In the Middle East, Saudi Arabia's energy minister promised a serious response to deadly Houthi attacks on the kingdom's oil and gas facilities, and Trump said he will decide whether to join Saudi strikes against the Yemeni group. Supply concerns provided additional support, with Aramco's CEO warning that global crude supply remains very tight. Benchmarks also benefitted from the Saudi Energy Ministry's expectation that increasing oil pipeline capacity to 10 million bpd will take two to three years. On October 6, the energy minister said about 6 million bpd were flowing through the East-West pipeline, with operations restored about five days after being struck.

Elsewhere, an Iranian Foreign Ministry spokesman said message exchanges with Washington continue via intermediaries, and that Teharn will respond after completing its review of US positions. The US reportedly accepted some of Iran's seven conditions in a response sent via Qatar, but Iran sees this as inadequate.

Focus now shifts to Trump's decision on joining strikes against the Houthis, the form of Saudi Arabia's response, and Iran's final reply, while the threat of winter attacks on Ukraine's energy infrastructure maintains a second source of supply risk.