Saudi East-West pipeline shut after drone strikes; Brent tops $105

Summary

• Saudi Arabia halted its 1,200 km East-West pipeline after weekend drone attacks, officials blaming Iran-backed Iraqi forces.
• The line was moving roughly 7 million barrels daily to the Red Sea, bypassing an Iran-closed Strait of Hormuz.
• Buyers told Reuters Yanbu holds only 5-7 days of export crude, putting up to 4% of world supply at risk.

The latest

Saudi Arabia's 1,200 km East-West pipeline is out of service after drone strikes over the weekend, cutting the kingdom's main alternative route to the Red Sea while the Strait of Hormuz stays closed by Iran. Saudi officials attributed the attacks to Iran-backed forces in Iraq. Brent crude climbed past $105 on Tuesday, trading near $106.57, its highest level in more than four months.

Details

• The route: The pipeline carries crude from the Eastern Province fields to Yanbu on the Red Sea, and had been moving about 7 million barrels per day as the workaround to Hormuz. With the line down, Saudi barrels lose their only large-scale path to market that avoids the strait.
• The countdown: Traders and buyers told Reuters that Yanbu's storage holds enough crude to sustain exports for just 5 to 7 days. Beyond that window, they said, as much as 4% of global supply would be exposed, with no equivalent replacement route available.
• Washington's line: US Energy Secretary Chris Wright said flows would resume within days, a markedly shorter timeline than the one implied by traders. He did not detail the repair work involved or name a specific restart date.
• The market move: Brent rose above $105 on Tuesday and traded around $106.57, the strongest level in over four months, according to Bloomberg. The move followed the pipeline shutdown rather than any change in announced production policy.
• The supply data: The International Energy Agency's September Oil Market Report recorded a 1.6 million barrel per day drop in global output during August, to 100.1 million barrels per day. The agency said more than 10 million barrels per day of Gulf production was shut in.
• Tanker dispute: CENTCOM rejected a claim by Iran's Revolutionary Guard that a Panama-flagged supertanker struck mines in the Strait of Hormuz. The US command said the vessel was hit by an Iranian missile last month, according to Al Jazeera's live coverage.
• Diplomacy stalls: Oman postponed the Salalah meeting between Iran and Gulf states that was convened to address Hormuz. No new date for the talks was announced.
• The blame question: Saudi officials said the drones came from Iran-backed forces in Iraq. The groups involved were not identified by name, and no claim of responsibility has been reported.

Background

Hormuz handles a large share of seaborne crude exports. The East-West pipeline exists precisely to move Saudi barrels around the strait, which is why its shutdown removes the fallback rather than merely adding a bottleneck.

Between the lines

Two timelines are now in open conflict: Wright's within-days restart against the 5-7 day storage buffer cited by buyers. If repairs slip past Yanbu's cushion, the 4% supply exposure stops being a projection. The IEA's already-recorded 1.6 million barrel per day August decline means the market absorbs this shock with Gulf output largely offline.

What's next

Watch for a Saudi restart announcement before Yanbu's 5-7 day storage runs down, any rescheduling of the Salalah talks, and Brent's direction if repairs extend beyond Wright's stated window.

Source: Al Jazeera, Reuters, Bloomberg, IEA, NewsNation, Fortune