1 hr ago
Saudi Pipeline Restart Eases Asia Supply Fears, But Prices Rise
Saudi Arabia temporarily stopped an important oil pipeline, which worried oil buyers in Asia.
The pipeline has now started working again, but it has not immediately returned to full capacity.
Restarting it helped lower Brent oil prices by more than $2 per barrel.
South Korea depends more on Saudi oil than Japan, China or India.
Experts say Asian refiners may first pay more for oil and shipping.
They may not run out of oil right away because Saudi Arabia has some stored supplies.
These reserves might last about one to two weeks if the pipeline stays disrupted.
Refiners can also buy oil from other regions, but those shipments may take more than a month to arrive.
Saudi Arabia restarted its East-West oil pipeline at a low rate on 22 September.
The restart resumed crude loadings from Yanbu and helped push Brent prices down by more than $2 per barrel.
South Korea had the highest Saudi-crude dependence among four major Asian importers, at 34.1% in July.
Analysts said prices, crude premiums and tanker freight costs could rise before Asian refiners face physical shortages.
Saudi inventories could support exports for roughly one to two weeks, while alternative cargoes may take more than a month to reach Asia.
- Who
- Saudi Arabia, Asian oil importers and refiners, and oil-market analysts.
- What
- Saudi Arabia restarted its East-West oil pipeline after a shutdown disrupted crude exports, easing immediate supply concerns while leaving risks to oil prices and freight costs.
- Where
- The disruption affected Saudi crude export flows, including shipments through Yanbu on the Red Sea, and Asian importing markets.
- When
- The pipeline restart was reported on 22 September; its shutdown and market effects were also reported on 15 September.
- Why
- The pipeline was important for redirecting Saudi crude toward Yanbu after disruptions around the Strait of Hormuz, and its shutdown raised concerns about replacement supplies and shipping costs.
Near-Term Cost Pressure
Supply Flexibility
What comes first
Near-Term Cost Pressure
Analysts said Asian refiners are likely to face higher oil prices, medium-sour crude premiums and delivered freight costs before an immediate physical shortage.
Supply Flexibility
The immediate physical impact may be limited because Saudi Arabia can draw on crude stored around Yanbu and Egypt, while the pipeline is being restored.
Replacing Saudi barrels
Near-Term Cost Pressure
Alternative cargoes from the Americas or West Africa can take more than a month to reach Asia, potentially increasing tanker demand and freight costs.
Supply Flexibility
Asian refiners can process a wider range of crude grades, allowing them to substitute some Saudi barrels with alternative supplies.
Meaning of the restart
Near-Term Cost Pressure
The risk remains significant because the pipeline has only restarted at a low rate and the pace of returning to normal capacity is uncertain.
Supply Flexibility
The restart has reduced the immediate risk of a prolonged Saudi supply disruption and resumed Yanbu crude loadings.
Key facts
- Pipeline status
- The East-West pipeline restarted at a low rate, with Saudi Arabia targeting a return toward about 4 million barrels per day.
- Yanbu loadings
- The restart allowed crude loadings from Yanbu to resume.
- Brent response
- Brent prices fell by more than $2 per barrel after the restart.
- South Korea exposure
- Saudi crude represented 34.1% of South Korea's crude imports in July.
- Other Asian exposures
- Saudi crude accounted for 27.3% of Japan's, 14.9% of China's and 10.2% of India's crude imports in July.
- Estimated pipeline flows
- Kpler estimated the pipeline carried about 5.5 million barrels per day before the attack, with roughly 4.5 million barrels per day later exported through Yanbu.
- Inventory buffer
- Analyst estimates suggested stored crude could keep exports moving for roughly one to two weeks if the pipeline remained offline.
Quotes
Oriano Lizza
Sales trader at CMC Markets
“The biggest near-term impact is likely to be on oil prices and freight costs rather than physical availability.”
livemint.com
“Asian refiners feel the cost immediately and the physical shortage weeks later”
livemint.com
Sources
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