Crude oil prices surge following Saudi pipeline closure and regional conflict

Crude oil prices rose Tuesday as Saudi Arabia reportedly cancelled some shipments after drone attacks forced the closure of its key export pipeline.

U.S. West Texas Intermediate traded 5% higher to $106.55 per barrel by 1:35 p.m. ET. Brent crude futures, the international benchmark, were up 3.4% to $109.23 per barrel. Prices have surged around 20% this month as fighting has sharply escalated in the Persian Gulf.

Trade sources told Reuters that the Saudis informed European customers that some September crude oil deliveries are cancelled.

The Saudis have described the pipeline closure as a "precautionary measure" but haven't provided a damage assessment or an estimate of how long the outage will last. Riyadh shut down the oil artery after damage last week sustained in a drone attack launched from Iraq.

Energy Secretary Chris Wright told CNBC on Tuesday that he expects the pipeline to restart operations in days. "This will be a brief and temporary interruption," Wright said.

The Saudis have been redirecting crude oil exports through the pipeline to the Red Sea as the U.S. and Iran battle for control of the Strait of Hormuz. The pipeline can carry 7 million barrels per day.

"The attacks on oil infrastructure mark a meaningful escalation of the conflict and increase the probability of our price upside scenario, where Brent exceeds $120," said Yulia Zhestkova Grigsby, senior commodity strategist at Goldman Sachs, in a Monday note.

And in Libya, the national oil company has suspended operations at two oilfields and a pumping station amid protests, according to Reuters.

Iran-backed Houthi militants in Yemen, meanwhile, carried out renewed strikes on Saudi Arabia this week. The militants launched drones and ballistic missiles at the cities of Khamis Mushait, Abha and Taif, according to a spokesperson for the Saudi-led military coalition in Yemen.

The security situation in Hormuz remains volatile with at least two tankers coming under attack since Saturday, according to incident reports from the United Kingdom Maritime Trade Operations Centre.

U.S. Central Command disputed a claim by Iran's Revolutionary Guard that the Panamanian-flagged oil tanker El Gaia struck a naval mine in the strait.

"The Panama-flagged oil tanker El Gaia was struck by an Iranian missile last month and rendered inoperable," CENTCOM said. "The IRGC's false claim is yet another example of their lies and intimidation attempts while they try to impede commercial vessels in the strait."