Saudi Arabia Cuts Europe Off From October Crude as Gulf Exports Surge
Saudi Aramco has told European term customers they will receive no Saudi crude in October, even as the kingdom pushes roughly 60 million barrels back through the Persian Gulf after damage to its East-West pipeline. At least two European refiners were told their October allocations are zero, Bloomberg reported Friday. People familiar with the decision said it applies to all European term buyers.…
Saudi Arabia has informed European term customers that they will receive no Saudi crude oil in October, despite the kingdom dispatching approximately 60 million barrels through the Persian Gulf following damage to its East-West pipeline. According to Bloomberg, at least two European refiners have been told their October allocations are zero, marking a significant shift for the region.
While Saudi Aramco has managed to move some of the stranded crude, Europe finds itself on the wrong side of the workaround. The East-West pipeline, which had been transporting 4 million to 5 million barrels per day, bypassed the Strait of Hormuz and moved towards Yanbu. However, the pipeline attack halted this flow, leaving Europe scrambling for alternatives.
Aramco has now sold around 60 million barrels from its Persian Gulf export terminal at Ras Tanura, with the barrels set to traverse the Hormuz and undergo ship-to-ship transfers near Sohar, Oman. Approximately 1 million to 1.5 million barrels per day of Saudi Gulf exports will be reintroduced into the market, primarily benefiting buyers in China, South Korea, India, and Japan, rather than Europe.
Oil futures have consequently adjusted, with Brent trading around $104.30 and WTI near $102, both below the earlier week's $108 benchmark. Europe is left in the lurch, as Gulf barrels destined for the West must navigate through Hormuz and the Red Sea, or circumnavigate Africa for nearly five weeks. Dated Brent, the benchmark for European crude, even surpassed $130 this week.
Polish refiner Orlen had already turned to North Sea barrels and sought U.S. and Kazakh crude alternatives after Saudi September cargoes faced delays or cancellations. U.S. Energy Secretary Chris Wright had previously expressed optimism that crude could resume flowing through the East-West pipeline within days. Although Aramco aims to restore about half of its pipeline capacity within days, full capacity is expected to take another six weeks.
The market had previously speculated about potential bottlenecks, with 4 million to 5 million barrels of crude potentially stranded behind the damaged pipeline. While Saudi Aramco has found an outlet for some of the crude, it is Asia that stands to benefit, not Europe, as Europe's October term allocation appears to be notably absent.
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