Oil prices declined significantly as Saudi Arabia restarted operations at its East-West Pipeline, which had been shut down on September 13 due to drone attacks. Brent crude fell by 2.64 percent to $97.69 a barrel, marking its first drop below $100 since September 9. West Texas Intermediate, the U.S. crude benchmark, also decreased by 3.20 percent to $89.41 a barrel. This restart, even at a low pumping rate, signaled a potential easing of supply concerns.
The East-West Pipeline, crucial for Saudi Arabia to bypass the Strait of Hormuz, was damaged by drone strikes, halting crude loadings at the Red Sea port of Yanbu and forcing Saudi Aramco to cancel some October cargoes to European customers. The pipeline's official capacity is about 7 million barrels per day, but analysts suggested that even 40 percent capacity could add an estimated 1 million barrels per day to the market, although the initial restart is at a reduced rate. Prior to the restart, Saudi Arabia had rerouted significant crude exports through the Strait of Hormuz, with an average of 2.9 million barrels per day over six days to September 18, up from about 700,000 barrels per day in August.
The drop in oil prices also came amid hopes that Iran might reopen the Strait of Hormuz within a week, contingent on the U.S. easing military pressure. Rystad Energy's chief economist warned that Brent at $100 and diesel at $6.50 a gallon were already squeezing consumers, raising concerns that the energy shock could lead to an economic slowdown. The Federal Reserve had recently raised interest rates to 3.75 percent to 4 percent in response to energy-driven inflation, highlighting the broader economic impact of oil prices.
