Oil prices continued their decline for the fourth consecutive session, with Brent crude futures falling 3.4% to $100.34 a barrel and West Texas Intermediate dropping 4.5% to $95.78 a barrel, reaching their lowest closes since September 8. This downturn is attributed to improving flows through the Strait of Hormuz and the prospect of renewed diplomatic efforts regarding the Iran conflict, which has eased immediate supply concerns. Analysts at MUFG noted that these factors are reducing the geopolitical risk premium in oil prices.
The primary driver for the recent fall in oil prices is the restart of Saudi Arabia's East-West pipeline. The pipeline, which was shut down on September 13 after drone attacks, has resumed operations, albeit at a low rate. This development allows Saudi Arabia to potentially resume exports from the Red Sea port of Yanbu later on Tuesday. The pipeline is crucial as it provides an alternative export route, bypassing the Strait of Hormuz.
Despite the easing of crude prices, tightness persists in fuel markets. The U.S. national average price of diesel rose to a record $6.51 a gallon on Monday, a significant increase from $3.696 a gallon a year earlier. Furthermore, security concerns continue to impact Saudi shipments from the Red Sea, with more than a dozen Saudi-flagged vessels rerouting around South Africa's Cape of Good Hope, adding approximately $1 million to the cost of each voyage. However, some analysts like Norbert Ruecker of Julius Baer have lowered their three-month oil-price forecast to $77.50 a barrel due to eased uncertainty.
Saudi Arabia had previously increased reliance on its Persian Gulf export terminals and ship-to-ship transfers through the Gulf of Oman to maintain crude movement, with Gulf loadings rising by nearly 2 million barrels a day to $2.46 million barrels a day so far this month. Ship-to-ship volumes from the Gulf of Oman also increased by $1.1 million barrels a day from August to $2.5 million barrels a day. The rerouting has strained tanker availability, with around 15% of the global fleet of very large crude carriers now off Oman. However, the broader crude market is not running out of oil, as increased flows through Hormuz and other routes, combined with lower demand, have kept the global market roughly balanced since the summer.
