Brent crude futures dropped more than 2% to around $98 per barrel on Tuesday, reaching $97.81, while West Texas Intermediate (WTI) fell to approximately $90 per barrel, settling at $89.50. This decline followed reports that Saudi Arabia had restarted its East-West Pipeline, which transports crude from eastern oil fields to the Red Sea port of Yanbu.
The pipeline, also known as the Petroline, had been shut down on September 13 after drone attacks damaged three pumping stations. The shutdown had raised concerns about Saudi Arabia's ability to maintain crude exports, particularly to European markets, and had led to higher physical crude prices in Europe, with some grades climbing above $130 per barrel. Saudi Aramco had informed European refiners about reduced October crude supplies and had to shift more exports through the Strait of Hormuz.
While the pipeline was initially pumping at a low rate, the resumption of operations eased fears of prolonged disruptions. The East-West Pipeline has a nameplate capacity of 5 million barrels per day, and Saudi Arabia had temporarily expanded it to 7 million barrels per day in 2019. Its strategic importance lies in providing an alternative export route, allowing crude to bypass the Strait of Hormuz, especially crucial during regional conflicts where traffic through the Strait has significantly decreased.
This restart, along with a surge in Gulf loadings of seven super tankers with a capacity for 14 million barrels over the weekend, signaled a shift in exports towards the Strait of Hormuz and contributed to the dip in crude prices. Market sentiment also improved due to improving traffic through the Strait of Hormuz and prospects for renewed diplomacy concerning the Iran conflict. Despite these developments, concerns about Saudi export constraints and security risks around the Red Sea mean the market remains vulnerable to future supply disruptions.
