Saudi Arabia’s Critical Oil Bypass Comes Under Threat

Houthi strikes on Saudi Arabia's oil infrastructure have caused concern in the oil markets, with the possibility of reduced Middle Eastern supply and potential damage to the East-West pipeline threatening 3-4 million barrels per day of Saudi crude exports. Gulf foreign ministers' meeting has provided some relief to soaring crude prices, but Brent at $105 per barrel and Middle Eastern grades like Murban and Oman at $120 per barrel are far from the ceiling if the situation persists.

OPEC has lowered its 2026 global oil demand growth forecast to 380,000 barrels per day, a decrease of 200,000 barrels per day since a month ago and the fifth consecutive downward revision. A suspected Houthi militant strike has caused fires and thermal anomalies in Saudi Arabia's 7 million b/d East-West oil pipeline, raising concerns about the pipeline's continued operation.

Australia has softened its proposed gas reservation policy, allowing regulators to lower the reservation rate for LNG plants, which could result in additional supply of up to 200 billion cubic feet per year. US diesel stocks are projected to fall below 100 million barrels for the first time since 2003, with diesel prices nearing $6 per gallon.

South Africa aims to revive its idled Sapref refinery, with a goal of increasing processing capacity to 650,000 b/d. European gas prices have hit a 44-month high due to fears of Ukraine's drone strikes disrupting LNG output at Russia's Yamal LNG facility. Meanwhile, Qatar has extended its force majeure ahead of the winter heating season.

Saudi crude production fell to 6.24 million b/d in August, its lowest level since 1990, as Houthi-driven disruptions cut exports by roughly one-third. Bangladesh has agreed to purchase 18 LNG cargoes from TotalEnergies, seeking to offset the loss of 570,000 tonnes of contracted Qatari supply. Several Asian refiners have urged Saudi Aramco to price 2027 term crude against ICE Brent, as disruptions to the Hormuz pipeline have reduced deliverable supply to 3-4 million b/d and driven prices above Brent in Dubai and Oman.

Mexico anticipates a 18% drop in crude exports to 426,600 b/d in 2027, as more domestic refining absorbs production and lower oil prices cut projected petroleum revenues. Ukraine has reportedly attacked Russian gas facilities in the Arctic, targeting assets linked to Gazprom and Novatek. Global coal demand is projected to reach a record high in 2026, reversing earlier expectations for a decline due to disruptions in oil and LNG supply from the Hormuz pipeline.

Kazakhstan plans to pursue a $5 billion environmental case against the Kashagan operator despite a brief suspension of enforcement. Iraq is seeking a higher OPEC production baseline of 6 million b/d, which could potentially affect OPEC cohesion. The White House has decided to postpone slapping tariffs on imported refined copper to avoid price risks for domestic manufacturers and consumers.