Oil prices fall as Saudi Arabia reroutes crude through Oman

Oil prices extended their retreat on Thursday as Saudi Arabia moved to ease global supply concerns by offering additional crude cargoes to Asian refiners through ship-to-ship transfers off Oman's Sohar port, partially offsetting disruptions caused by last week's drone attacks on the kingdom's East-West pipeline.

Brent crude fell more than 1% in early trading, pulling back from four-month highs hit earlier in the week, according to Reuters. Both Brent and West Texas Intermediate contracts dropped roughly $3 on Wednesday before extending losses Thursday, though prices remained above $100 a barrel.reuters+1

Saudi Arabia Scrambles to Maintain Exports

The East-West pipeline, a 1,200-kilometer artery capable of transporting roughly 7 million barrels per day, was shut down on September 11 after drone strikes launched from Iraqi territory damaged two pumping stations. The pipeline had become Saudi Arabia's primary export route after Iran began blockading the Strait of Hormuz following the U.S. and Israeli strikes on Iran in late February.wikipedia+2

With the pipeline offline, crude loadings at Saudi Arabia's Red Sea hub of Yanbu were suspended and Riyadh cancelled some cargo deliveries to European customers. Traders warned a prolonged closure could cut off as much as 4% of global oil supply.lufkindailynews

Saudi Aramco is now reportedly working to bypass the damaged section and restore about half the pipeline's capacity within days, according to Bloomberg, while U.S. Energy Secretary Chris Wright told CNBC on Tuesday that crude should be flowing through the pipeline "within days". In the meantime, Saudi Arabia's additional loadings through Oman's Sohar port are helping bridge the gap for Asian buyers.reuters+2

"Concerns over supply tightness eased slightly following news that Saudi Arabia would ship cargo via Oman," said Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment. Analysts at Saxo Bank cautioned, however, that the Oman flows are "only partly offsetting lost export barrels".arabnews+1

Broader Conflict Keeps Markets on Edge

Despite the price pullback, the widening Middle East conflict continues to weigh on markets. Saudi warplanes struck Yemen on Wednesday while Houthi fighters launched drones and missiles at Saudi cities in a rapid advance that has extended Tehran's reach in the regional war. The Houthis have said Saudi-linked vessels remain targets in the Red Sea.reuters+2

European customers have already begun seeking alternatives. Poland's Orlen said Wednesday it purchased 16 additional oil cargoes from Norway, Britain, Algeria, Kazakhstan, Azerbaijan, and the Americas to cover demand through October, after Saudi Aramco — its largest supplier at roughly 40% of volumes — halted contracted deliveries.investing

Meanwhile, tightening diesel supplies have emerged as a separate pressure point. European gasoil futures and U.S. ultra-low sulfur diesel futures both settled at record highs on Tuesday, with Goldman Sachs The Goldman Sachs Group, Inc. ↘ 0.36% noting that diesel shortage concerns have pushed refiners to prioritize diesel over gasoline production. A Ukrainian drone attack on a Russian refinery in Yaroslavl on Thursday added to constraints on global fuel availability.lufkindailynews

"Product tightness could easily become a bigger issue than crude supply itself in the near term, especially with Russian refining capacity also constrained," said Tim Waterer, chief market analyst at KCM Trade.lufkindailynews