Saudi Arabia’s oil export lifeline severed indefinitely – analysts

Crude oil supply concerns have mounted this week, after Yemen’s Iran-aligned Houthi militant group launched a massive offensive against Saudi Arabia.

IMAGE: Oil barrels and a pipeline along with Saudi Arabia's national flag. Getty Images

Brent's price has skyrocketed amid escalation in the Red Sea, as the Houthis continue to expand control over Yemen’s west coast and hit oil infrastructure critical for Saudi Arabia’s export route.

The militant group struck the 1,200 km East-West Pipeline last week, choking Riyadh’s critical export route that funnels about 70% of its crude exports through the Red Sea terminal at Yanbu to circumvent the Strait of Hormuz.

“Plenty of uncertainty remains over the extent of damage and the duration of the outage for the East-West pipeline in Saudi Arabia,” two analysts from ING Bank noted. “Prices are likely to remain well supported until we get clarity,” they added.

The development has put further upward pressure on Brent’s price as market analysts fear the pipeline shutdown could last for weeks and crude oil at Yanbu may deplete before the pipeline operations fully restore.

Restoration work could take three to five weeks, the Associated Press (AP) reported, citing two regional officials. Consequently, refiners are uncertain how the pipeline shutdown will affect crude loadings at the port of Yanbu.

“The Saudis have oil in storage tanks at Yanbu, which should sustain exports for several days. The risk is that port stocks run out before the pipeline resumes,” ING Bank’s analysts added.

The OPEC de-facto leader’s state-owned oil company Aramco has cancelled or delayed its late-September crude cargoes to several European refiners as no crude cargo has left Yanbu since 11 September, Argus Media reported, citing market sources.

“There are still doubts as to how long the pipeline will be offline. UK officials fear it could be shut for six weeks,” ANZ Bank’s senior commodity strategist Daniel Hynes noted.

However, Washington appears more optimistic than much of the market. Crude oil could be flowing out of the vital pipeline within days, Reuters reported, citing US energy secretary Chris Wright.

Riyadh is also trying to move oil through the Strait of Hormuz with US military assistance, Wright said on the sidelines of a G20 energy meeting.

By Aparupa Mazumder

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