North Sea oil premiums hit records as Saudi Aramco cuts Europe supply

The attack on Saudi Arabia's East-West pipeline has triggered a scramble among European refiners for alternative crude supplies, driving physical premiums for North Sea oil to levels never seen before and deepening a fuel crisis that stretches from the United States to Africa.

Europe Cut Off

Saudi Aramco on Friday told its European customers they would receive no crude under their long-term supply agreements next month, according to Bloomberg. The decision followed a series of drone strikes launched from Iraqi territory on September 10–11 that forced the kingdom to shut its 1,200-kilometer East-West pipeline as a precaution. The pipeline, with a capacity of up to seven million barrels a day, had been Saudi Arabia's main workaround for getting oil to market after the U.S.-Iran conflict restricted tanker transits through the Strait of Hormuz.maritime-executive+4

With European buyers now effectively cut off, Norway's Johan Sverdrup crude — a grade closely comparable to Saudi supplies — was offered at a premium of as much as $35 a barrel above the Dated Brent physical benchmark this week, up from just 60 cents on September 8, traders told Bloomberg. The Dated Brent benchmark itself briefly climbed above $130 a barrel for the first time since April. Poland's Orlen has issued more than 10 tenders since September 11 as it searches for replacement cargoes, with the company's chief executive confirming that four September shipments would not arrive.theedgemalaysia+1

A Tightening Spiral

The pipeline shutdown has compounded an already strained global market. Disruptions to flows through the Strait of Hormuz had already curtailed exports from Kuwait, the UAE and Iraq, while rising Chinese purchases and slowing emergency reserve releases further drew down stockpiles over the summer. Soaring freight costs — moving crude from the U.S. to Asia now runs $26 a barrel — mean most refiners are competing for nearby cargoes, intensifying the bidding war in Europe.theedgemalaysia

The downstream effects are severe. Diesel prices in the United States surpassed $6 a gallon last week, reaching $6.45 on Friday, while diesel in Europe has exceeded $200 a barrel. Fuel shortages have been reported at gas stations in parts of Brazil, Libya and several African countries.wsj+1

No Quick Fix

Saudi Arabia is working to restore about half of the pipeline's capacity within days, according to a person familiar with the matter cited by Bloomberg. In the meantime, the kingdom has pivoted back to loading oil from its Persian Gulf terminals and routing tankers through the contested Strait of Hormuz. The IEA has revised world oil supply projections down by 1.3 million barrels a day from its previous estimate, deferring a full recovery in Middle Eastern output until 2027.iea+2

Brent futures settled near $104 a barrel on Friday, masking the far more extreme stress in the physical market where actual cargoes change hands. As Poten & Partners noted in its analysis, "the global oil market is tight as it is and can ill afford to lose another 4-5 Mb/d of supply".maritime-executive+1