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Oil prices cooled off after a massive multi-day rally even as investors weighed supply concerns following Saudi Arabia’s suspension of oil loadings at its Yanbu port. The move came after an attack on the country’s East-West pipeline, which carries crude to the Red Sea.
Investors are now watching how long Saudi Arabia’s East-West pipeline will remain out of operation. Drone strikes forced the pipeline to shut last week, and Saudi Aramco has since delayed oil deliveries to some European buyers this month, according to a Bloomberg report.
Crude oil price on September 16
Brent crude futures were down 93 cents, or 0.86%, at $107.82 a barrel, while U.S. West Texas Intermediate futures declined 97 cents, or 0.92%, to $104.86 a barrel. Both benchmarks had gained more than $3 in the previous session, settling at their highest levels since May 19.
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Brent crude has risen roughly 75% so far this year. The Russia-Ukraine war, along with the prolonged conflict in West Asia, has contributed to inflation and pushed 10-year U.S. Treasury yields to their highest level since 2007.
Oil loadings at Saudi Arabia’s Yanbu port were suspended after the world’s biggest crude exporter shut its East-West pipeline following a Friday attack by Yemen’s Iran-aligned Houthis. The pipeline allows Saudi Arabia to divert around 4 million barrels per day of crude to the Red Sea port, equivalent to about 4% of global oil supply.
The U.S. energy secretary said crude should begin flowing again through Saudi Arabia’s critical East-West pipeline within days. However, Reuters said that multiple sources gave different views on how long the outage could last. One source estimated that repairs could take five to six weeks, while another said partial pumping could resume sooner as repair work continues.
Separately, oil operations at three fields in Libya have been suspended after members of the Petroleum Facilities Guard protesting over issues shut a valve on the Hamada-Zawiya crude export pipeline, the National Oil Corporation said.
Where are prices headed?
The possibility of further disruptions has increasingly shifted the risks for oil prices to the upside. Daan Struyven, co-head of global commodities research at Goldman Sachs, said recent attacks indicated that shipping disruptions could spread and become more severe.
Goldman Sachs has outlined a scenario in which oil prices could climb as high as $120 a barrel if attacks on Middle Eastern vessels intensify. If exports return to normal, however, the bank expects oil prices to move back towards $80 a barrel. Struyven told Bloomberg that shipping risks had become an important factor driving oil prices.
Struyven said Goldman Sachs sees "meaningful upside to crude oil prices" and also expects natural gas and refined product prices to rise. He said supply shocks in gas and fuels are larger than those in the crude market.
The duration of the disruption will be critical for oil prices. JPMorgan estimates that each additional month of disruption could add around $7 to $8 a barrel to Brent prices. If the disruption continues for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.
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Citi has raised its average Brent crude price forecast for the third quarter to $86 a barrel from $80, citing a longer-than-expected timeline for the reopening of the Strait of Hormuz.
ANZ analysts have also lifted their short-term Brent forecast to $95 a barrel and warned that prices could rise further if the Middle East conflict escalates. They said a prolonged standoff involving calibrated military action by the US and Iran appeared to be the most likely scenario, which could delay the return of full Middle Eastern supply.
Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.
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