Brent crude hit a session high of $109.80 a barrel Monday as Saudi Arabia kept its East-West pipeline closed following drone strikes and diplomatic efforts to stabilize the region stalled. Brent settled at $105.34, a 0.7% rise, while U.S. crude closed 0.9% higher at $100.92, having peaked at $104.95 during the day. Iraq-launched drones hit the East-West pipeline on Thursday, and Saudi Arabia subsequently took the line offline, according to CNBC.
Riyadh has not disclosed the extent of the damage or when it expects to reopen the line. Andy Lipow, president of Lipow Oil Associates, wrote in a Monday note that at least one pump station sustained major damage and that getting the line back in service could require months of work. "The longer the shutdown, the higher the price.
Judging from the on-line pictures, it will take months to repair," Lipow said. The pipeline can carry 7 million barrels per day and has served as the primary route for moving Saudi crude away from the Persian Gulf while the U.S. and Iran contest control of the Strait of Hormuz. Matt Smith, director of commodity research at Kpler, calculated that a month-long outage combined with a full drawdown of inventories at Yanbu would remove roughly 120 million barrels from global supply.
"Losing 120 million barrels in exports across the next month would be hugely supportive for prices, particularly given we are at a juncture where the global market is already starved of barrels," Smith said. Janiv Shah, an oil market analyst at Rystad Energy, wrote Monday that traders appear to be betting on Saudi stockpiles to keep near-term export flows from tightening too sharply. He added, however, that sentiment could deteriorate rapidly once the outage exceeds the roughly five-to-seven days that on-hand inventory can realistically bridge.
A diplomatic meeting of Iran and Gulf Arab states, scheduled for Monday in the Omani city of Salalah, was postponed after the pipeline attack. "In the interests of consensus the regional meeting set for tomorrow in Salalah has been postponed," Oman's Foreign Minister Badr Albusaidi said Sunday on social media. "We remain committed to fostering dialogue that supports stability and lasting cooperation in our region." Security conditions in the region worsened over the weekend.
Another tanker came under attack Sunday and suffered a severe fire, the United Kingdom Maritime Trade Operations Centre said. Houthi militants have also reportedly taken control of Perim Island in the Bab el-Mandeb Strait, a chokepoint that Riyadh has depended on to move crude to market ever since the Hormuz standoff cut off the Gulf route. Oil prices had already gained about 9% last week as fighting between the U.S. and Iran escalated.
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