Oil Losses Deepen as Saudi Ship-to-Ship Transfers Calm Pipeline Fears

Oil prices extended their decline Thursday as fears of a prolonged supply disruption eased following attacks on Saudi Arabia’s key East-West pipeline. Reports that the kingdom was arranging additional crude cargoes for Asian refiners helped reassure markets that some interrupted supply could return.

Brent futures, the international benchmark, fell 2% to $103.65 per barrel. U.S. crude oil declined 1.6% to $100.75 a barrel, leaving both quoted contracts above $100 despite the latest retreat.

Saudi Arabia is making additional crude cargoes available through ship-to-ship transfers near Oman’s Sohar port, Reuters reported, citing sources familiar with the matter. The cargoes are being offered to Asian refiners as the kingdom seeks to cushion the global supply impact from attacks on the pipeline.

The East-West pipeline provides a route to the Red Sea, making its availability important for Saudi export flows. Concerns about the outage had intensified after crude loading operations at the Red Sea export terminal at Yanbu were halted earlier this week.

Riyadh also canceled some shipments to European customers after operations at Yanbu were disrupted. Those developments raised concerns about the availability of Saudi crude before reports emerged about the additional cargoes near Sohar.

U.S. Energy Secretary Chris Wright sought to ease those concerns during an interview with CNBC on Tuesday. Wright described the East-West pipeline outage as a “brief and temporary interruption” that “will be measured in days,” signaling that the disruption was not expected to persist.

The assessment helped reduce immediate anxiety about supply losses. Saudi Arabia’s reported use of ship-to-ship transfers offered another indication that alternative arrangements could help crude reach customers while the pipeline and Yanbu operations remained disrupted.

Yanbu has become Saudi Arabia’s key oil export route since Iran began blockading the Strait of Hormuz. The blockade followed U.S. and Israeli attacks on Iran in late February, increasing the importance of export access through the Red Sea.

The interruption at Yanbu therefore placed renewed attention on Saudi Arabia’s ability to redirect crude. The reported cargo availability near Sohar suggested that at least part of the affected supply could move through another route.

Peter Massabni, head of business development at XS.com, said in a note late Wednesday that Saudi efforts to find alternative export routes had reassured markets. He said those measures indicated that some crude supply lost after the disruption at Yanbu could return.

That reassurance weighed against concerns about the East-West pipeline attack and helped oil prices extend their decline. The latest market response reflected easing fears over immediate Saudi export availability, even as the broader regional outlook remained uncertain.

Massabni cautioned that the outlook continues to depend heavily on developments in the Middle East. A renewed escalation causing deeper disruption to regional oil and gas production and exports would keep inflation risks elevated and place additional upward pressure on bond yields, he said.

The warning highlighted the continuing sensitivity of energy markets to regional production and export flows. Although Saudi Arabia’s alternative arrangements eased some immediate concerns, the potential for a wider disruption remained part of the outlook described by Massabni.

“This uncertainty regarding escalation paths in the region, along with crude, gasoline, and diesel prices staying at high and critical levels, could fuel pessimism about the US Federal Reserve monetary policy path,” he wrote.

For now, the reported Saudi cargo arrangements and Wright’s description of the pipeline outage have reduced fears that the interruption will cause a prolonged loss of supply. Oil nevertheless remained at elevated levels Thursday as uncertainty surrounding Middle East energy production, exports and escalation continued.