Saudi Aramco has told refiners in Europe that it will not deliver, in October, the crude set out in their long-term supply contracts. The news was reported by Bloomberg, based on buyers who received the notice; the Saudi state producer did not comment when approached. The cut covers European customers as a whole, rather than one contract or another.
Behind it is the drone attack that struck the East-West pipeline on 10 September — the 1,200-kilometre line running from the oil fields of eastern Saudi Arabia to the Red Sea port of Yanbu. Pumping stations were damaged, there were fires and injuries, and the line was shut. No cargo of Saudi crude has left Yanbu since 11 September.
Why a single pipeline became the bottleneck
The East-West line is not one route among others. Since shipping through the Strait of Hormuz began to be disrupted in March, in the wake of the war between the United States, Israel and Iran, it was carrying most of what Saudi Arabia exported — around 5 million barrels a day, or between 4% and 5% of global supply, according to Al Jazeera.
With the pipeline down, the kingdom lost both of its outlets at once: the Gulf and the Red Sea. Stocks built up at Yanbu were estimated at around five days of loadings.
What Europe stops receiving
European OECD countries imported 577,000 barrels a day of Saudi crude in June. Saudi Arabia is not the continent's largest supplier, but that is a volume that has to be replaced within weeks, in the same market where everyone else is buying.
The most exposed case is Poland's Orlen, which runs refineries in Poland, Lithuania and the Czech Republic and takes roughly 40% of its crude feedstock from Aramco. The company has run more than ten purchase tenders since last Friday and has turned to North Sea grades — Grane, Johan Sverdrup and Johan Castberg.
Part of the Saudi oil that reached Europe made its final leg through Egypt's SUMED pipeline, with a capacity of 2.5 million barrels a day, and left from the Mediterranean terminal of Sidi Kerir. With nothing loading at Yanbu, that is the flow that dries up: four September fixtures from Sidi Kerir to Gdansk failed to materialise.
The price
Brent is trading near $104 a barrel, after a week between $104 and $108, with WTI around $103. Before the war began on 28 February, Brent stood at about $72.
The number that best shows the squeeze is not the futures contract but the physical barrel: North Sea Forties reached $136.75 — far above the benchmark, which is what happens when more refineries are chasing cargo than there is cargo available to load now.
Who attacked, and what comes next
No group claimed responsibility. The Iraqi government said its investigation found the drones were launched from Maysan province, in south-eastern Iraq, and dismissed the commander of military operations in the region. Iran-aligned Iraqi militias are the suspects.
Saudi Arabia chose not to retaliate. The Saudi Ministry of Foreign Affairs said it would hold back "at this stage" but reserved the right to "take all measures necessary" to protect its interests.
On repairs, the expectation reported by the trade press is a partial restart within days and five to six weeks for full capacity. Until that happens, it is the November schedule that will decide whether the October cut was an interruption or the start of a longer shortage.
With information from Bloomberg (via Investing.com), Al Jazeera, OilPrice and Invezz.
