Saudi Pipeline Outage Threatens Up to 4% of Global Oil Supply
By Alex Lawler and Dmitry Zhdannikov
LONDON, Sept 13 (Reuters) – Saudi Arabia will run out of oil stocks available for export if it does not restart its main east-west pipeline to the Red Sea within days, Saudi oil buyers and traders said, warning that the outage could remove as much as 4% of global supply.
A further decline in Saudi flows would worsen a global supply crunch that has already pushed fuel prices to record highs, stoked inflation around the world and sent U.S. bond yields to their highest levels since the 2008 financial crisis.
The warning underscores the market's fragility after months of war-related disruptions. Traders are now focused on whether Saudi Arabia can keep exports flowing from storage long enough for repairs to be completed.
Since drone attacks forced Saudi Arabia to shut the huge east-west pipeline on Friday, Riyadh has not given full details about the extent of the damage or how long the route will stay offline.
Sources who spoke to Reuters gave varying estimates. One said repairs could take as long as five to six weeks. Another said the damage could be fixed sooner and that the pipeline could resume partial pumping while repairs are ongoing.
Saudi Arabia's government media office and energy ministry did not immediately respond to requests for comment.
For the past six months, the pipeline running through the desert across the Arabian Peninsula has spared Saudi Arabia from the brunt of the wartime shutdown of the Strait of Hormuz, which has crippled exports from its neighbors.
The world's biggest exporter has used the pipeline to reroute around 4 million barrels per day — roughly 4% of global supply — to the port of Yanbu on the Red Sea. But with the pipeline out of service, Yanbu now has stocks to maintain exports for just five to seven days, according to three industry sources familiar with Saudi exports. A fourth source said Saudi Arabia also has stocks to supply customers for several days from Egypt's ports of Ain Sukhna on the Red Sea and Sidi Kerir on the Mediterranean.
Yanbu's storage capacity stands at around 35 million barrels, according to industry estimates, while Ain Sukhna and Sidi Kerir can store 18 million and 20 million barrels respectively. The four sources said those inventories are not full and will ultimately run out without the east-west pipeline resuming operations.
Saudi oil supply had already fallen to a more than three-decade low in August on reduced flows via Hormuz and the Red Sea, the International Energy Agency said on Friday. The IEA, which coordinates Western energy policies, said world oil supply will decline this year by 5.7 million bpd, or about 6%.
In addition to the attack on the pipeline, Houthi fighters in Yemen who have threatened Saudi oil shipments seized an island on Friday at the mouth of the Red Sea.
The Middle East supplied around 22 million barrels per day of oil before the war. Flows through the Strait of Hormuz have slowed to just 6 million to 9 million bpd, industry sources say.
Saudi Arabia told OPEC last week that its oil production had dropped to just 6.2 million bpd in August from 10.9 million bpd in February before the start of the war.
Additional reporting by Maha El Dahan; Editing by Peter Graff