Oil Prices Fall for the Second Day in a Row: Riyadh Prepares to Repair an Oil Pipeline and Arrange Shipments via Oman

On September 17, oil prices fell for the second consecutive trading session: Brent futures dropped from a weekly high of $109 per barrel to $104, while WTI futures fell to $101.5. Trading Economics attributes the price decline to reports that Saudi Arabia plans to quickly repair the damaged “East-West” oil export pipeline. On September 16, both futures contracts fell by about $3.

The kingdom is also offering Asian oil refineries additional shipments of crude, to be transshipped between tankers at the Omani port of Sohar, Reuters reports, citing informed sources. According to the agency, this partially mitigates the impact of the attacks on the East-West oil pipeline on global supplies.

"Fears of a shortage have eased somewhat following news that Saudi Arabia will ship oil through Oman," explained Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment (as quoted by Reuters).

About half of the damaged oil pipeline’s capacity is expected to be restored within a few days, and Saudi Arabia intends to fully restore the pipeline to operation within six weeks, according to Trading Economics. U.S. Energy Minister Chris Wright, speaking on CNBC on September 15, called the halt in oil flow a “short-term disruption” that “will be measured in days.” According to Kikukawa of Nissan Securities, “expectations of progress in reducing tensions in the Middle East ahead of next week’s U.S.-China summit are also holding back the rise in [oil] prices.”

Following the U.S. and Israeli strikes on Iran in late February, Tehran began blocking the Strait of Hormuz, through which one-fifth of the world’s oil supply had passed prior to the war. Yanbu on the Red Sea has become the main port for Saudi oil exports, with crude arriving via the East-West Pipeline. However, last week, two pumping stations along that pipeline were damaged in an attack, prompting Riyadh to cancel some shipments to European customers, and oil prices rose to four-month highs earlier this week, Reuters reports. Industry participants have said that a prolonged shutdown of this pipeline could deprive the global market of up to 4% of its oil supply.

“The key factor is downtime: the longer the pipeline is out of service, the higher the risk that Saudi exports will be reduced via the Red Sea or rerouted through the risky Strait of Hormuz,” Skip York, a research fellow at the Center for Energy Studies at the Baker Institute for Public Policy, told the Oil & Gas Journal. “Therefore, the market’s reaction will likely manifest not only in Brent or WTI prices but also in widening price differentials in the oil market, rising freight costs, and a reduction in the supply of petroleum products relative to demand,” the expert warned.

This article was AI-translated and verified by a human editor