Saudi Arabia's East-West pipeline restart pulled oil prices lower this week, but Hormuz-area workarounds are costing exporters record freight rates. Prices snapped back Wednesday after Iran's president told the U.N. his country will not surrender to the U.S.
Saudi pipeline restart snaps the rally
Saudi Arabia's restart of its East-West pipeline triggered a sharp drop in oil prices this week, even though exports from the Red Sea port of Yanbu remain below prior levels. Houthi strikes had knocked out the pipeline last week, and some expected repairs to last months. Before the attack, the line carried about 4 million barrels daily across Saudi Arabia to Yanbu, letting Aramco route crude around the Strait of Hormuz entirely.
Without it, Aramco pushed more barrels back through the Persian Gulf, selling volumes for movement through Hormuz and ship-to-ship transfers near Oman.
Ship-to-ship transfers spread across the Gulf
Ship-to-ship transfers, once mostly used by sanctioned exporters such as Venezuela, Iran and occasionally Russia, have become routine practice across the Persian Gulf. Smaller vessels load crude and carry it short distances to larger tankers waiting in the Gulf of Oman, outside the strait, before returning to reload.
The workaround comes at a cost. Oil flows through the Strait of Hormuz have averaged roughly 6.5 million barrels daily since the start of the month. That compares with about 20 million barrels daily before the U.S. and Israel began bombing Iran at the end of February.
Freight costs hit an all-time high
Tanker owners wary of shipping risk are charging record rates. Freight now accounts for as much as 25% of the total cost of moving crude from the Middle East to China, and a very large crude carrier on that route fetches $30 per barrel in freight — an all-time high. Even so, the UAE is on track to lift exports above last year's level, with loadings this month estimated at 3.6 million barrels daily, up from 3.4 million barrels daily a year earlier.
Prices snap back as Iran digs in
Brent rose 3.9% to close at $103.08 a barrel on Wednesday. WTI advanced 1.8% to settle at $92.16, ending five consecutive days of losses. U.S. crude is still down 8% on the week, while Brent has lost nearly 1%.
The rebound came after Iranian President Masoud Pezeshkian told the U.N. General Assembly that Iran will not surrender to the United States. Trump said Tuesday U.S. officials met with Iran's delegation for about three hours. Yet he has also threatened to "annihilate" Iran unless it agrees to a deal. Despite the diplomacy, Reuters has reported Iran could reopen the Strait of Hormuz within a week if the U.S. eases military pressure and lifts its blockade of Iranian ports.
Sources: Oilprice.com, CNBC
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