Saudi Pipeline Restart Eases Oil Supply Fears
Oil prices paused their weekly rally after reports indicated a key Saudi Arabian pipeline would resume operations at half capacity within days, alleviating immediate supply concerns.
Brent crude futures settled at $105.41 per barrel on Wednesday, marking a 3.1% decline from the previous session. U.S. West Texas Intermediate crude dropped 3.6% to settle at $102.02. These gains were not erased completely, as both benchmarks remained up significantly for the week, with Brent rising 6.1% and WTI increasing 8.1%. The price correction followed news that the East-West pipeline, shut down last week due to drone attacks by Iran-backed Houthis, is expected to restart at 50% capacity soon.
The temporary halt in the pipeline forced Saudi Arabia to suspend loadings at the Yanbu port, exacerbating global supply disruption fears. However, reports from Bloomberg News cited a person familiar with the matter, stating that the kingdom is moving to restore flow through the conduit. This development directly reduced the perceived risk of prolonged supply shortages in the short term, causing traders to unwind some of the risk premium added to oil prices earlier in the week.
Geopolitical Tensions Remain Central Driver
Despite the pipeline news, the broader conflict in the Middle East continues to influence market sentiment. The situation has evolved from a standoff over the Strait of Hormuz to direct engagements between Saudi Arabia and the Houthis in Yemen. The Houthis are attempting to secure greater control over western Yemen to gain leverage over the Bab el-Mandeb Strait, another critical shipping corridor. Simultaneously, the U.S. and Iran remain in conflict regarding the Strait of Hormuz, which restricts vessel crossings and keeps a lid on logistics.
Macquarie energy strategist Walt Chancellor noted that while geopolitical developments have been bullish for oil since late August, fundamental flows may be decoupling from the conflict narrative. He observed that oil flows through the Strait of Hormuz may have actually increased to over 7.5 million barrels per day since the resumption of hostilities on August 30. This suggests that despite the escalating rhetoric and military activity, physical supply movements have not been as severely impacted as the market initially feared.
U.S. Inventories and Export Data
Domestic data from the United States provided additional context to the price action. The Energy Information Administration reported that commercial crude oil inventories, excluding the Strategic Petroleum Reserve, fell by 700,000 barrels in the week ending September 11 to 423.4 million barrels. This decline was less than the 1.6 million barrel drop expected by analysts. Including the SPR, total inventories fell by 1 million barrels to 708.4 million, the lowest level recorded since February 1984.
Conversely, U.S. export activity reached a peak, with total exports of crude oil and fuel products hitting 12.39 million barrels for the week of September 11. This marked the highest weekly export figure since early June. The combination of lower-than-expected inventory drawdowns and record-high exports indicates a robust domestic supply chain that continues to contribute to global market liquidity, even as geopolitical risks persist in the Gulf region.
