Oil drops as Saudi export recovery eases supply fears

Oil prices fell to their lowest in more than a week on Monday as hopes for diplomatic progress at this week's United Nations General Assembly and a partial recovery in Saudi oil exports eased some of the risk premium that has kept crude elevated above $100 a barrel.

Brent crude futures dropped over 2%, while U.S. West Texas Intermediate crude also declined sharply, breaking below the $100-a-barrel mark for the first time since early September. The slide came even as Yemen's Iran-backed Houthis launched missiles and drones at targets in the Saudi capital Riyadh and at Saudi Aramco's facility in the Red Sea port city of Yanbu on Saturday.cnbc+1

Saudi Exports Recover Through Hormuz

The price decline reflects growing confidence that Saudi Arabia has found a workaround for disrupted export routes. JPMorgan ↘ 0.73% analysts noted in a Sept. 18 report that "Middle East oil flows remain surprisingly strong despite the disruption to Saudi Arabia's East-West pipeline," with total flows averaging 17.1 million barrels per day over the prior 10 days.reuters+1

The most notable shift has come from Saudi Arabia itself. Satellite data showed Saudi oil moving through the Strait of Hormuz averaged 2.9 million barrels per day over the past six days, up from just 700,000 bpd in August, according to JPMorgan. Saudi exports have recovered to over 4 million bpd so far in September after slumping to 2.4 million bpd in August — the lowest since at least 2013, according to analytics firm Kpler.reuters

Saudi Arabia has been routing crude by pipeline to its Ras Tanura port on the Persian Gulf, transferring oil onto small vessels that navigate to the Gulf of Oman before loading onto larger tankers.oilprice

Diplomacy and Tensions in Focus

"It seems that a degree of risk premium is being removed from oil prices on hopes that a diplomatic path to de-escalate the US-Iran war may arrive this week," said Tim Waterer, chief market analyst at KCM Trade. Iranian President Masoud Pezeshkian is expected in New York this week for the UN General Assembly, and President Donald Trump said he would be open to a meeting.reuters

Meanwhile, China has asked Iran to help rein in the Houthis after an appeal to Beijing by Saudi Arabia following the weekend attacks, according to three Iranian sources cited by Reuters. Iran's security chief Mohsen Rezaei conveyed Tehran's conditions to mediators for re-engaging in negotiations, according to Al Jazeera.reuters

Still, Trump struck a combative tone in a Fox News ↘ 0.63% interview, saying he is in a "deciding mode" regarding the conflict. "My question is, if and when do I blow the entire nation up? They better behave," he said.cnbc

Fragile Outlook

Despite the partial export recovery, Saudi Arabia's options remain constrained. The East-West Pipeline, which carried 7 million barrels per day before its precautionary shutdown, remains offline after drone strikes hit pumping stations. The International Energy Agency has estimated that 410 million barrels have been drawn from global stockpiles since the start of the war. Daniel Takieddine, CEO of Sky Links Capital Group, warned that "any setback or renewed deterioration in shipping conditions would tighten the physical market and restore upward pressure on prices".tbsnews+1