The closure of Saudi Arabia's East-West pipeline due to drone attacks at the end of last week has harmed the country's oil exports and may continue for several weeks. This pipeline, which allows Saudi Arabia to export its oil from the port of Yanbu in the Red Sea, has acted as a vital route for bypassing the Strait of Hormuz over the past six months.
Impact on Saudi Oil Exports
The closure of this pipeline poses serious risks for about 4 million barrels per day (bpd) of Saudi oil loadings from Yanbu. Saudi Arabia may be able to maintain its exports for a few days using inventories at Yanbu, but if the shutdown continues, oil flows in the Red Sea, which are under heavy surveillance by Houthi rebels in Yemen, will face serious risks.
Reduction of Strategic Inventories and Rising Prices
Strategic oil inventories in developed countries, especially the United States, have fallen to their lowest levels since the early 1980s. Meanwhile, China, which had strategically reduced its crude oil imports in May and June by 4 to 5 million barrels per day, is now gradually increasing its purchases. This change in demand has put additional pressure on the oil market and led to rising prices.
Chevron CEO Mike Wirth announced at an energy conference at the University of Texas at Austin that with declining market inventories, oil prices may rise in the coming months. He stated, "It is hard to imagine that prices will drop quickly, and risks remain tilted to the upside."
In August, global oil inventories decreased by 95 million barrels, bringing the total decline since February to 507 million barrels. Additionally, the volume of oil at sea has decreased by 65 million barrels due to renewed attacks on oil traffic from the Middle East.
Given these developments, oil prices are now at their highest level since May, and there is a possibility of further increases. While Saudi oil exports from the Red Sea have decreased to below 2 million barrels per day due to Houthi threats, about 9 million barrels per day of Middle Eastern oil supply is effectively offline.
