Saudi Pipeline Outage Puts 4% of Global Oil Supply at Risk

A crucial Saudi Arabian oil pipeline, responsible for carrying approximately 4% of global supply, has been shut down following drone attacks, raising concerns that the kingdom could run out of export-ready stocks within days. The disruption threatens to remove up to 4 million barrels per day (bpd) from an already strained global market, according to oil traders and buyers who spoke with Reuters.

Pipeline Shutdown Threatens Exports

The east-west pipeline was forced to close on Friday after the attacks. Saudi Arabia has not yet released official details on the extent of the damage or a timeline for repairs. Industry sources cited by Reuters gave varying estimates, with one suggesting repairs could take five to six weeks, while another indicated a partial restart might be possible sooner.

This pipeline has been a critical alternative route, allowing Saudi Arabia to ship crude to the Red Sea port of Yanbu, bypassing the troubled Strait of Hormuz. With the pipeline offline, Yanbu now holds only 5 to 7 days of export inventories, according to three sources familiar with the matter. Additional stocks are held at ports in Egypt but are also finite.

Market Impact

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A prolonged outage would significantly worsen a global supply crunch that has already contributed to record-high fuel prices, spurred global inflation, and pushed U.S. bond yields to their highest levels since the 2008 financial crisis. The loss of 4 million bpd from Saudi Arabia, the world's largest exporter, would put further upward pressure on energy prices.

Context: A Squeezed Global Supply

The incident comes at a time of heightened geopolitical tension and supply constraints. Flows through the Strait of Hormuz have already slowed to between 6 million and 9 million bpd, down from a pre-war average of 22 million bpd for the Middle East, according to industry sources.

Saudi Arabia's own oil supply had already fallen to a multi-decade low in August, the International Energy Agency (IEA) reported on Friday. The IEA projects that total world oil supply will decline by 5.7 million bpd this year. Citing its own data submitted to OPEC, Saudi production fell to just 6.2 million bpd in August from 10.9 million bpd in February.