Oil prices fell on Thursday as Saudi Arabia diverted some of its crude oil exports through the Strait of Hormuz to compensate for the closure of a major pipeline, allaying market fears that the pipeline closure would cause another major disruption to global supplies.
Brent futures, the international benchmark, fell $1.01 to close at $104.82 per barrel. U.S. West Texas Intermediate crude fell 52 cents to settle at $101.91. U.S. crude oil rose nearly 2% for the week and more than 18% for the month.
Sources told Reuters that Saudi Arabia is providing additional crude oil cargoes to Asian refiners through ship-to-ship transfers on the outskirts of Hormuz, near Oman’s Sohar port.
The shuttle ships could transport crude oil through Hormuz and load it onto tankers waiting outside the strait, avoiding the risk of an Iranian attack while transiting the Gulf.
Saudi crude oil loadings at Saudi Arabia’s Middle East Gulf ports have increased so far this month, said Matt Smith, director of commodity research at Kpler. Ship transfers in the Gulf of Oman also increased from 1.5 million barrels per day in August to 2.7 million barrels per day, Smith said. But he said it was difficult to know whether Saudi Arabia or other Gulf states were behind these transfers.
U.S. Energy Secretary Chris Wright told CNBC on Tuesday that Saudi Arabia has taken “swift action” to export more crude oil through Hormuz with support from the U.S. military.
Saudi Arabia earlier this week halted crude oil loading at its Red Sea export terminal in Yanbu and canceled some shipments to European customers, industry sources told Reuters.
Yanbu has been a key route for Saudi Arabia’s oil exports since Iran launched attacks on tankers in the Strait of Hormuz in late February following attacks on the country by the United States and Israel.
Saudi Arabia closed its East-West pipeline late last week after it was damaged by a drone attack from Iraq. The U.S. Energy Secretary told CNBC that the outage was a “short, temporary interruption” that “will be measured in days.” But independent analysts have warned that repairing the damage could take weeks or months.
Rapidan Energy expects Saudi Arabia’s crude oil exports to fall by 400,000 barrels per day this month due to the pipeline outage. However, the decline in shipments from Yanbu should be partially offset by an increase in exports via Hormuz, Lapidan said.
“If the pipeline outages extend beyond September, or if Iran, the Houthis or other proxies escalate attacks, the risks remain skewed toward large-scale disruption,” Rapidan told clients in a note Thursday.
