Saudi pipeline shutdown is testing oil markets’ nerves
Saudi pipeline shutdown is testing oil markets’ nerves
On Friday, Saudi Arabia temporarily shut its roughly 750-mile East-West pipeline after drones launched from Iraq struck a pumping station serving the strategic route from the Gulf coast to Yanbu on the Red Sea. The government said several people were injured. Satellite images released days later showed fire-damaged structures and broad blackened ground around the site — vivid evidence of why a pipeline designed to bypass the Strait of Hormuz matters so much in a regional conflict.
The closure removed a system with an estimated design capacity of 7 million barrels a day just as threats were widening beyond the Gulf. The pipeline is Saudi Arabia’s principal alternative route for moving crude westward, while Houthi pressure near the Bab el-Mandeb Strait has raised a second set of worries over Red Sea shipping. By Monday, the market reaction was unmistakable: Brent climbed to $108.02 a barrel, after gaining more than 20% over the preceding month, and one report said oil had hit $109 following the shutdown.
Then came the central dispute: how temporary is “temporary”? U.S. Energy Secretary Chris Wright told CNBC on Tuesday that the disruption would last days. But Andy Lipow of Lipow Oil Associates reached a far harsher conclusion from images of the damage: “judging from the on-line pictures, it will take months to repair.”
By Wednesday, oil had retreated as reports pointed to a 7.1-million-barrel rise in U.S. crude inventories, defying expectations for a draw. Brent fell 1.02% to $107.64 and West Texas Intermediate dropped 1.29% to $104.46. Yet the inventory relief did not settle the wider question. As Tickmill’s Joseph Dahrieh put it, crude will remain tied to security on Gulf export routes and the pace of Saudi repairs; a prolonged outage or further disruption to shipping could tighten the physical market again.
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