Oil prices jumped more than 3% on Tuesday, with Brent crude futures rising $3.49, or 3.3%, to $109.20 a barrel, while U.S. West Texas Intermediate climbed $5.08, or 5.01%, to $106.46, amid growing fears of supply disruptions in the Middle East.
The move puts both benchmarks on track for their highest close in about four months, as disruptions continue along key shipping routes and concerns grow over how long Saudi exports will remain disrupted.
Loading suspended and shipments to Europe canceled
Shipping industry sources said oil loading for export from the Red Sea port of Yanbu was suspended after an attack on Saudi Arabia’s East-West pipeline, prompting the kingdom to temporarily shut it down. The sources added that Saudi Arabia had told some European customers that crude shipments scheduled for delivery in late September had been canceled.
The East-West pipeline runs 1,200 kilometers across Saudi Arabia and had transported between 4 million and 5 million barrels per day, equivalent to about 4% to 5% of global supplies. The pipeline has gained importance over the past six months as oil flows through the Strait of Hormuz have been disrupted.
Andy Lipow, president of Lipow Oil Associates, said the cancellation of some Saudi shipments to Europe had strengthened expectations that European refineries would turn to U.S. crude to make up the shortfall, contributing to the rise in West Texas Intermediate. He added that traders were betting that the disruption to Saudi exports would last longer than expected, potentially boosting demand for lighter U.S. crude grades.
Preliminary data from Kpler showed that commodity vessel traffic through the Strait of Hormuz fell to four ships on Monday, from 10 ships the previous day. The company’s data indicated that Saudi Arabia had been producing about 7.3 million barrels per day before the war broke out, with nearly 4 million barrels per day directed for export through Yanbu via the East-West pipeline.
Available alternatives include drawing on inventories in Yanbu, transporting crude north through the Suez Canal and Egypt’s SUMED pipeline, and increasing shipments through the Strait of Hormuz despite the security risks. Kpler estimated that the Suez Canal and SUMED route could theoretically handle up to 3.4 million barrels per day of Saudi crude without passing through the Bab el-Mandeb Strait.
Diverging estimates for East-West pipeline repairs
Estimates varied over when the East-West pipeline would resume operations. U.S. Energy Secretary Chris Wright said oil flows through the pipeline could resume within days, noting that damage assessments were still under way, while other sources estimated that repairs could take between five and six weeks, with partial pumping potentially resuming sooner as repair work continues.
Goldman Sachs said estimates for the repair period ranged from an almost immediate return to service to eight weeks. It warned that attacks on oil infrastructure represented a major escalation, increasing the likelihood that Brent crude could rise above $120 a barrel if Gulf producers’ output losses continued.
Libyan sites halt operations as Russian refineries face pressure
Pressure on Saudi supplies coincided with a halt in operations at three oil sites in Libya after protesters from the Petroleum Facilities Guard shut a valve on the Hamada-Zawiya pipeline. Libya’s National Oil Corporation said it might have to declare force majeure if the shutdown continued or spread to other fields.
Attacks on energy facilities in Russia and Ukraine also added to pressure on fuel markets. Three of Russia’s six largest diesel-producing refineries sharply cut or halted production during September because of damage caused by drone attacks.
Hamed Hussein, an economist specializing in climate and commodities at Capital Economics, said the latest attacks on Saudi Arabia could affect investors’ assessment of the conflict’s intensity and duration, at a time when global supply routes are becoming less flexible.
