- Saudi Arabia has restarted its East-West oil pipeline after drone attacks forced it to close.
- The pipeline was initially operating at a low pumping rate, with a return to around 4 million barrels per day potentially taking time.
- Brent crude fell by more than $2 a barrel after news of the restart, reaching its lowest level since September 8.
Could the restart of one of Saudi Arabia’s key oil routes give global energy markets some breathing room? Saudi Arabia has restarted its East-West Pipeline after attacks disrupted the route, and according to Reuters, the move was followed by a fall in oil prices as traders assessed the possibility of crude supplies returning to the market.
The pipeline had been shut after drone attacks on September 11, with operations halted on September 13. Its closure disrupted supplies to the Red Sea port of Yanbu and stopped crude loadings there.
Now, three sources briefed on the matter have said the pipeline has restarted, although two said pumping was initially at a low rate. Saudi Aramco has not publicly confirmed the restart.
For oil markets, the development matters because the East-West Pipeline offers Saudi Arabia an alternative route for getting crude to the Red Sea without sending it through the Strait of Hormuz.
Why the pipeline matters beyond Saudi Arabia
Saudi Arabia has been using the pipeline to move oil from its producing regions in the east towards Yanbu on the Red Sea. During the disruption to oil flows through the Strait of Hormuz, the route has been carrying around 4 million barrels per day, equivalent to roughly 4 per cent of global supply, according to the sources cited by Reuters.
That makes its operating status important well beyond Saudi Arabia.
The route effectively gives the world's biggest crude exporter another way to move oil towards customers in Asia and elsewhere. A sustained return to higher flows could therefore increase the amount of crude available for export and reduce some of the supply pressure that has been reflected in oil prices.
But the restart does not mean the pipeline is immediately back to full capacity.
One source said Saudi Aramco was working to restore the pumping rate to around 4 million barrels per day. A security source said a full resumption could take weeks.
That means traders may have to look beyond the headline of a restart and watch how much oil actually begins moving through the system.
Oil prices have already reacted
Brent crude futures fell by more than $2 a barrel following news that the pipeline had restarted, reaching their lowest level since September 8. Traders cited the potential return of Saudi crude supplies as one factor behind the move.
The reaction suggests that markets are already considering what an increase in Saudi exports could mean for the balance between supply and demand.
But the direction of oil prices will depend on more than one pipeline.
The wider disruption to oil flows through the Strait of Hormuz remains important, as does the security situation affecting energy infrastructure in the region. Traders will also be watching how quickly Saudi Arabia restores the pipeline's pumping rate and whether Yanbu can return to regular crude loading.
One cargo was scheduled to load at Yanbu on Tuesday and was expected to head to China, according to one source. Two other trading sources said traders were positioning tankers near Egypt's Port Said and Sidi Kerir for possible ship-to-ship transfers.
The restart could therefore offer some relief to the physical oil market, but the scale of that relief is still unclear.
For consumers and businesses, the important point is that a lower oil price can eventually feed into some energy and transport costs, although movements in crude prices do not translate immediately or one-for-one into prices at petrol stations or energy bills.
The next signal for the market may therefore not be the pipeline's restart itself, but how quickly Saudi Arabia can restore the flow of millions of barrels of crude through it.
