Amid mounting fears of persistent shut-ins, which according to JPMorgan commodities chief Natasha Kaneva could reach 12 million by Friday, and which have sent the price of oil soaring to multi-year highs…
…. Saudi Arabia delivered some good news this morning, when it announced that it has already ramped up its oil exports to more than half of normal levels despite the disruptions from the Iran war, an early sign of success for the kingdom’s ambitious contingency plan to bypass the Strait of Hormuz, which as we reported two weeks ago involve bypassing the blockaded Strait of Hormuz via the East-West pipeline.
With Hormuz all but closed, Saudi Arabia has been rerouting oil through a 1,200 kilometer (746 mile) pipeline to the western port of Yanbu. At the same time, it’s quickly amassed a huge armada of tankers that have streamed toward the Red Sea to load the oil and are now piling up around the port.
According to Bloomberg tracking data, shipments from Yanbu have averaged about 4.19 million barrels a day over the past five days, already a significant share of the roughly 7 million barrels the kingdom was exporting in total before the war, and sharply higher than the about 1.4 million barrels that previously moved through the port. In other words, this is a roughly 3.5 million bbl improvement compared to the pre-war average.
The most oil Saudi Arabia has loaded from Yanbu this month has been 4.65 million barrels in a day. That has happened on three occasions, but other days have been lower.
Saudi Arabia is the only producer with a significant alternative option; the United Arab Emirates has a pipeline route to the Gulf of Oman, but its flows have been vulnerable to disruption as the port of Fujairah that it relies on has been forced to stop loading on several occasions due to drone attacks.
Meanwhile, as Saudi Arabia rushes to reroute its oil, the tankers are stacking up off its Red Sea coast. At least 32 supertankers and suezmax vessels are waiting near Yanbu to load cargoes, while others are still on their way.
Short-term averages of loading data tend to be noisy, but Saudi Arabia has said it intends to ramp up loadings for foreign buyers from its Red Sea ports and has been giving long-term customers the option of receiving supplies from Yanbu. State oil producer Saudi Aramco didn’t respond to emails seeking comment on the level of Yanbu exports.
About a fifth of the world’s oil normally flows through Hormuz, the narrow chokepoint into the Persian Gulf, and producers in the region are being forced to curtail production as storage begins to fill up. The International Energy Agency has warned the war is causing the largest supply disruption in oil market history.
While the bounce in exports is welcome news, the risk remains that with every energy facility in the middle east now fair game for Iranian attacks, that a rocket or drone manages to take out the pipeline next, effectively standing all Saudi exports for the foreseeable futre.
