Saudi pipeline outage threatens loss of 4% of global oil supply

Drone strikes that damaged a Saudi pipeline yesterday could cut up to 4% of global oil supply and spur even higher fuel prices.

Saudi Arabia will run out of oil stocks for exports if it doesn't restart its major pipeline to the Red Sea within days, leading to a loss of up to 4% of global supply, Saudi oil buyers and traders said.

A further decline in Saudi flows will worsen the global supply crunch, which has already pushed global fuel prices to record highs, spurred inflation around the world and sent US bond yields to the highest levels since the 2008 financial crisis.

Since drone attacks forced Saudi Arabia to shut its huge east-west oil pipeline on Friday, Riyadh has not given full details about the extent of the damage or how long the route will stay offline.

Sources that spoke to Reuters gave varying estimates, with one saying the damage could take as long as five to six weeks to repair, while another said it could be fixed sooner and could resume pumping partially 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 impact of the wartime shutdown of the Strait of Hormuz that has crippled exports from its neighbors.

4% of global supply rerouted using the damaged pipeline

The world's biggest exporter has used the pipeline to reroute around 4 million barrels per day — around 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.

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, a fourth source said.

Yanbu storage capacity stands at around 35 million barrels, according to industry estimates, with Ain Sukhna and Sidi Kerir able to store 18 million and 20 million barrels respectively. Stocks are not full and will ultimately run out without the east-west pipeline resuming operations, the four sources said.

Saudi oil supply fell 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. World oil supply will decline this year by 5.7 million bpd, or about 6%, the IEA, which coordinates Western energy policies, said. In addition to the attack on the pipeline, Houthi fighters in Yemen, who have threatened Saudi oil shipments, seized an island on Friday in the mouth of the Red Sea.

The Middle East supplied around 22 million barrels of oil per day 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.