The East-West Pipeline in the Riyadh and Madinah regions was subjected to multiple attacks on the morning of September 10 and subsequently shut down “as a precautionary measure”, a statement posted on the official X page of Saudi Arabia’s Ministry of Energy on Friday noted.
“The attacks resulted in a number of injuries, and medical care was provided to those affected,” the statement said.
“Emergency and specialized technical teams responded immediately following the attacks, taking the necessary measures to secure the pipeline and assess its safety in line with approved safety procedures and emergency response plans, in coordination with the relevant authorities,” it added.
“Any further developments will be announced in due course,” it continued.
In a market update sent to Rigzone by the Rystad Energy team on Monday, Rystad highlighted that Saudi Arabia’s East-West pipeline closure leaves the Strait of Hormuz as the Kingdom’s only route for moving large volumes of crude westward.
“The move to $108 a barrel is a clear signal that the market is increasingly pricing in a significant loss of supply,” Janiv Shah, Vice President, Commodity Markets – Oil at Rystad, said in the update.
“The broader Middle East conflict is already putting a premium on crude, and the loss of Saudi Arabia’s East-West pipeline adds another major constraint,” Shah added.
“The relatively contained price reaction suggests the market still expects Saudi inventories to cushion exports in the near term, but if the disruption extends beyond the five-to-seven-day inventory cushion, that could change quickly,” Shah warned.
Shah went on to state that supply “is becoming a prized commodity” and warned that “without greater clarity on where replacement barrels will come from, we wouldn’t be surprised to see prices push higher in the short term”.
Looking at the road ahead, Rystad outlined that Yanbu outages for different periods of time will produce different reactions from the market and call for specific actions.
For example, a one-month outage at Yanbu would keep about 78-120 million barrels out of the export market, Rystad pointed out. While this “remains a large disruption”, the market “could initially manage it through commercial inventory draws, cargo deferrals, and aggressive spot purchases”, Rystad highlighted .
Crude flows would become longer and more expensive, however, Rystad warned. More U.S. and Latin American barrels would sail toward Asia, largely around the Cape, while Europe would replace lost Saudi supply with regional and Atlantic crude, Rystad projected under this scenario.
A two-month outage would remove approximately 156-240 million barrels of export availability, according to the update, which noted that, “at the lower end, this would require a major reallocation of global crude flows”.
“At the upper end, normal arbitrage would be insufficient,” Rystad warned.
“Asian refiners would have to rewrite crude programs, draw inventories, and reduce runs. More WTI Midland, Canadian, Brazilian and West African crude would move east, leaving European refiners competing more aggressively for North Sea, CPC, Azeri, Libyan and other Mediterranean barrels,” it added.
“Replacement crude would travel farther than the Saudi barrels it replaces, tying up vessels for longer and reducing effective tanker availability,” Rystad continued.
“Global balances may look workable based on sufficient crude production, yet prompt scarcity will be a challenge because replacement barrels are in the wrong location and will take six to eight weeks to arrive,” Rystad said.
A three-month outage would place approximately 230-360 million barrels of potential Yanbu exports at risk, the update outlined.
“This volume cannot be replaced solely through spot market reallocation,” Rystad warned.
“Less complex or poorly configured Asian refineries would begin cutting throughput because replacement crude would be unavailable, unsuitable or uneconomic after freight,” Rystad added.
“More sophisticated refiners could maintain runs by changing their blends, but their yields and margins would deteriorate,” Rystad noted under this scenario.
SPR and commercial inventories would become “increasingly important” in this scenario, Rystad pointed out. Rystad noted, however, that while stock releases could bridge delayed arrivals, they would not recreate Saudi export capacity.
“They would also leave the market more exposed to further shipping attacks, refinery outages, or production disruptions elsewhere,” Rystad warned.
Rystad outlined in its update that the Yanbu disruption will challenge global supply and demand “as we flip from a relatively balanced market currently to one that is heavily undersupplied in the next few months”.
“Global balances are likely to shift materially on the loss of three million barrels per day of Yanbu loadings and exports,” Rystad said in the update.
“The lead time would be around four weeks before this becomes visible, as refiners will already receive cargos on water as per their refinery planning and scheduling,” it added.
“Even so, run rates may be tweaked to ensure sufficient medium sour mixes in latter slates.
Therefore, there would likely be a downward revision in throughput, but not by as much as the loss of exports,” it continued.
Atlantic Basin crude purchased after the disruption cannot arrive in Asia immediately, Rystad highlighted. It also pointed out that Saudi cargoes redirected through Suez, Gibraltar, and the Cape take “substantially longer” to reach Northeast Asia than cargoes sailing south through Bab el-Mandeb.
“Refiners must therefore buy additional prompt barrels to cover the gap,” Rystad warned.
“This should deepen Dubai backwardation, lift the prompt Brent structure, widen the DFL, and support refinery margins as diesel cracks gain further upside,” it added.
“The near-term directional view is bullish for both benchmarks but more structurally bullish for Dubai and competing sour crude differentials,” it said.
“A price move should only begin to reverse when crude is demonstrably pumping West again, or Saudi barrels are loading through the Strait of Hormuz,” Rystad continued.
Monte Safieddine, Head of Market Research at Capital.com, noted in a market analysis sent to Rigzone on Monday that oil prices gapped higher “as further attacks are reported and talks over a temporary shipping corridor through the Strait of Hormuz were postponed, and follow[ed]… the East-West pipeline taken offline due to drone strikes late last week”.
“Investors are still bracing for a protracted Iran war and ongoing Middle East supply risks, with the duration of the pipeline halt where an estimated four to five million barrels per day were flowing and any update on talks both items to note,” Safieddine added.
In a commodity report sent to Rigzone on Friday, Ole Hansen, Head of Commodity Strategy at Saxo Bank, highlighted that Brent crude “surged more than six percent on Thursday as fighting across the Middle East intensified and concerns about Saudi Arabian supply added another layer of risk to an already severely disrupted market”.
“Attacks on Saudi energy facilities forced some operations to halt, while unconfirmed reports suggested the strategically important East-West pipeline to Yanbu had been damaged,” Hansen said in the report.
“The pipeline, capable of transporting around five million barrels per day for export, has become particularly important during the disruption to normal shipping through the Strait of Hormuz, allowing Saudi crude to reach Red Sea export terminals without passing through the narrow strait,” Hansen highlighted.
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