Yahoo Finance
The war in Iran that had to be over and won by the United States in about six weeks is now in its seventh month and the oil markets are starting to crack.
Gone are most of the cushions the market had in the early weeks and months of the Middle East conflict.
The oversupply from early this year has disappeared as oil on water was drawn down quickly when the Strait of Hormuz was closed to tanker traffic in March.
Record stock releases led by the International Energy Agency (IEA) depleted strategic inventories in developed economies, including in the United States, where the Strategic Petroleum Reserve (SPR) now holds the lowest level of crude oil since the early 1980s.
China, which strategically slashed its crude oil imports by about 4-5 million barrels per day (bpd) in May and June, has startedto gradually ramp uppurchases, removing a significant demand-side balancing mechanism that had prevented oil prices from spiking to record highs in the spring.
With few buffers left to absorb the six-month-long disruption of oil flows at the Strait of Hormuz, the last thing the market needed was an escalation that put a key non-Hormuz flow valve at risk.
But here we are: thevital East-West oil pipelinein Saudi Arabia, which helped the Kingdom bypass the Strait of Hormuz and export most of its crude oil from the Yanbu port on the Red Sea, is now out of service –possibly for weeks– following drone attacks at the end of last week.
Thanks to the East-West pipeline, for half a year Saudi Arabia has managed to re-route most of its crude loadings from the western ports in the Persian Gulf to the Red Sea port of Yanbu.
However, the closure of the pipeline has now introduced a major risk to about 4 million barrels per day (bpd) of Saudi crude oil shipments from Yanbu.
Saudi Arabia may be able to sustain exports for days by drawing from Yanbu's stocks, but a longer disruption to the pipeline operations could jeopardize the Red Sea flows, which are already under intense scrutiny by the Iran-aligned Houthis in Yemen, who are targeting Saudi shipments and even hit some tankers in July.
While Saudi Arabia's customers in Asia arescrambling for updates, the oil market is pricing in another disruption to the Middle East's oil flows at a time when the buffers are all but gone, and the fuel markets and prices are flashing severe tightness across continents.
Chevron CEO Mike Wirth said on Friday that the market buffers have now been "played out" and oil prices could rise further over the coming months.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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