Saudi Arabia Restarts East-West Oil Pipeline

Saudi Arabia has recommenced operation of its East-West oil pipeline, reestablishing at least a portion of the route that previously served as the country's primary escape route around the Strait of Hormuz. Currently, the pipeline is operating at a reduced capacity, according to Reuters sources, with Aramco aiming to restore flows to approximately 4 million barrels per day (bpd).

Full reactivation may take several weeks. A shipment to China was slated to depart from the Red Sea port of Yanbu on Tuesday, bound for China. Market participants did not wait for full capacity to be restored. Brent crude experienced a temporary decline of more than $2 per barrel, plummeting to a two-week low of around $98, while West Texas Intermediate (WTI) fell below $92.

Prices gradually began to recover later in the morning. This development coincided with an Iranian proposal to reopen the Strait of Hormuz within seven days, contingent upon the United States reducing military pressure and lifting the blockade on Iranian ports. Prior to the drone attacks that led to the pipeline's shutdown earlier this month, the East-West pipeline had been carrying around 4 million bpd from Saudi Arabia to Yanbu.

In the absence of the pipeline, Aramco redirected crude towards the Persian Gulf, selling tens of millions of barrels to facilitate movement through the Hormuz and ship-to-ship transfers near Oman. This workaround benefited Asian buyers; however, Aramco had previously informed European term customers that October crude allocations would be zero following the pipeline outage, which disrupted supplies typically moved from Yanbu through Egypt's SUMED system to the Mediterranean.

Traders are already anticipating the reopening of this route. According to Reuters sources, tankers are being redirected toward Egypt's Port Said and Sidi Kerir for ship-to-ship transfers as Saudi flows resume. Despite the pipeline's return to operation, the physical oil market continues to face significant challenges. Saudi pipeline flows remain significantly below normal levels, Hormuz traffic is still restricted, and diesel markets are tight following refinery disruptions in Russia and the Middle East.