Oil retreats 1.2% as Saudi reroutes exports

Oil prices tumbled nearly 1.2% on Thursday as Saudi Arabia announced extra crude shipments to Asian refineries via Oman, easing immediate supply concerns after attacks led to the shutdown of the kingdom's East-West pipeline. Brent crude slipped $1.24 to $104.59 per barrel, while US West Texas Intermediate fell $1.14, or 1.1%, to $101.29.

Prices briefly recovered some ground, closing Thursday at $105.64 and $102.10 respectively. The declines followed hints that Saudi Arabia was arranging ship-to-ship transfers off Oman's Sohar port, providing an alternate route for Saudi Aramco to send barrels to Asian customers while its main pipeline remains offline. The 1,200-kilometer East-West pipeline, known as Petroline, transports crude from eastern production sites to the Red Sea port of Yanbu, bypassing the Strait of Hormuz.

Saudi authorities sealed the line after drone strikes damaged two pumps last week, though the origin of the attacks remains unconfirmed. Yanbu loading operations were halted following the damage, exacerbating supply network constraints already strained by limited tanker traffic through Hormuz. Despite the additional Saudi cargoes through Oman, market participants cautioned the alternative flows would only mitigate a portion of the volumes typically handled through Yanbu, leaving the market vulnerable if repairs take longer or security worsens.

While the East-West pipeline typically moves between 2.6 million and 5 million barrels daily, its total capacity is larger, but actual exports fluctuate based on production, storage, and shipping conditions. The supply outlook has also been clouded by instability in the Bab el-Mandeb Strait, where Houthi forces have expanded their reach around coastal areas and islands, adding another layer of risk to shipping routes from Yanbu to Asian markets.

Saudi Arabia has concurrently ramped up utilization of Gulf export terminals when feasible. Analysts contend these facilities offer some flexibility, yet their success hinges on safe shipping through Hormuz and the availability of tankers willing to navigate the area. US inventory data offered another indicator for traders, showing commercial crude stocks slipped by about 600,000 barrels to 423.4 million barrels in the week ending September 11, lower than anticipated market expectations for a 1.6 million barrel draw.

US crude production dipped by roughly 3,000 barrels per day to 13.94 million barrels per day, while exports surged to 4.83 million barrels per day. Gasoline inventories rose by about 800,000 barrels to 207.7 million barrels. Shipping data highlighted the ongoing vulnerability of the Gulf route, with only three commercial vessels recorded passing through the Strait of Hormuz on Wednesday, down from 12 the prior day and well below the 10-day average of 17, although some ships may have traveled with tracking systems disabled.

US strategic petroleum reserves, not included in commercial inventory figures, declined by about 400,000 barrels to 285 million barrels, diminishing an additional buffer available to the market if regional supply losses become more enduring or extensive.