Futures contracts for both and are falling by nearly 2 percent, while remaining near their highest levels in almost four months.
The slowdown in price increases reflects optimism about taming the impact of the deep disruption to Middle East exports, as Saudi Arabia shifts crude loading away from the out-of-service port of Yanbu, alongside a build in US inventories over the past week. Conversely, ongoing sporadic strikes across multiple fronts continue to raise the risk of worsening structural disruptions to production and export infrastructure at vital points across the region.
Reuters reported that Saudi Arabia offered Asian refinery buyers the option to load via the port of Sohar, located outside the Strait of Hormuz, following the attack on the East-West pipeline, which can transport up to 7 million barrels per day and leads to the port of Yanbu, where loading operations also stopped. The news agency also noted, citing data from consulting firm Energy Aspects, that in recent days Saudi Arabia doubled loading operations at the Ras Tanura and Juaymah terminals in the east, enabling the loading of two supertankers carrying an equivalent of 4 million barrels. Furthermore, separate ship-tracking data from Kpler showed that four supertankers, with a total capacity of 8 million barrels, loaded at Ras Tanura on Wednesday.
This could offer some market optimism about a partial supply recovery, even if limited, until structurally damaged pumping facilities on the East-West line are repaired and loading resumes through the port, which could take days to weeks, according to estimates from the Wall Street Journal and Reuters. However, this scenario assumes Saudi Arabia and the Houthis in Yemen will not be dragged into further escalation that could deepen this structural disruption.
Indeed, this relies on both sides being certain that this war is not in either party’s favor, and that continuing it will only mean an endless war with no winner, where both sides lose, serving only to weaken the region’s international presence and drain its resources. Accordingly, despite the current lack of indications, I do not rule out both sides returning to negotiations and agreeing to de-escalate. Previous rounds of fighting in past years suggest this scenario is achievable.
Realizing this scenario would provide further relief to the market and shift focus back to the Strait of Hormuz. Meanwhile, the strait continues to see sparse tanker traffic, at least according to tracked data. Reuters reported, citing Kpler, that only four vessels crossed the strait yesterday, with no supertankers for oil or liquefied natural gas. The United Kingdom Maritime Trade Operations UKMTO received a report yesterday regarding an incident in the Strait of Hormuz, where an unidentified projectile struck a ship. In any case, the continued flow of a few million barrels of crude through the strait under US protection, along with the partial resumption of Saudi crude flows, could make a significant difference, potentially pushing prices down from their current peaks.
According to Reuters, citing data from the American Petroleum Institute, U.S. inventories of crude oil, , and distillates rose in the week ending September 11, with crude inventories increasing by 7.1 million barrels. That added some temporary relief to the market.
In addition, I do not rule out the US administration moving again toward refraining from escalation and feeding media commentary about the possibility of negotiations with Iran, as prices for refined products like diesel and gasoline, as well as bond yields, reach extremely critical levels ahead of the crucial midterm elections. The US national average diesel price reached a new historic peak today by exceeding 6.31 dollars per gallon, along with 4.36 dollars per gallon for gasoline, representing an increase of more than 37 percent compared to its level a year ago, according to American Automobile Association AAA figures.
Accordingly, if these assumptions hold, crude prices may return to wide sideways trading, characterized by rapid rises followed by sudden drops over the next fifty days. Conversely, if the current gray state continues and diplomatic settlement prospects remain absent, the risk of expanding target areas for infrastructure and oil tankers would persist, keeping prices vulnerable to rising toward new peaks not seen during this war.
Written by Samer Hasn, Senior Market Analyst at XS.com
