Oil prices rise as Saudi pipeline outage, Houthi moves threaten global oil supplies

Oil prices rose on Monday as fresh disruptions around Saudi Arabia and key shipping routes raised concerns about further losses to global crude supplies.

Brent crude futures rose $2.90, or 2.77 per cent, to $107.51 a barrel, while US West Texas Intermediate gained $2.27, or 2.27 per cent, to $102.32 as of 2313 GMT. Both contracts had initially climbed more than 3 per cent at the start of trading.

The latest gains came after Saudi Arabia’s East-West oil pipeline was shut following a drone strike and as Yemen’s Iran-aligned Houthis tightened their position around the Bab el-Mandeb Strait, another major route for global oil shipments.

Saudi pipeline outage threatens oil exports

Saudi Arabia’s East-West pipeline, which carries oil across the kingdom to the Red Sea port of Yanbu, was shut after Friday’s attack. The pipeline has become particularly important during the war because it allows Saudi Arabia to bypass the Strait of Hormuz.

The system has been moving around 4 million barrels per day, equivalent to roughly 4 per cent of global oil supply, towards Yanbu, according to Reuters.

Saudi Arabia has enough crude stored at Yanbu to maintain exports for only around five to seven days, Reuters reported. Additional stocks are available at Egypt’s Ain Sukhna and Sidi Kerir ports, but these inventories are also limited.

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The duration of the outage remains uncertain. The report gave varying estimates for repairs, with one saying the damage could take five to six weeks to fix, while another said the pipeline could resume partial operations sooner.

A prolonged shutdown could therefore put further pressure on an already tight global oil market.

Saudi crude production had already fallen to 6.2 million barrels per day in August from 10.9 million bpd in February, according to figures Riyadh provided to OPEC.

Bab el-Mandeb adds another supply risk

Concerns are also growing around the Bab el-Mandeb Strait, a vital shipping passage linking the Red Sea and the Gulf of Aden.

Houthi fighters reached Perim island at the mouth of the strait on Friday, raising concerns over their ability to exert greater control over the shipping route. The waterway has carried around 4-5 per cent of global oil supplies in recent months.

The development comes as shipping through the Strait of Hormuz, the world’s most important oil chokepoint, has already fallen sharply. Industry sources estimate that only around 6 million to 9 million barrels per day are currently moving through Hormuz, compared with much higher flows before the war.

The combination of disruptions around Hormuz, the Saudi pipeline outage and growing risks around Bab el-Mandeb is adding to pressure on global energy markets.

The International Energy Agency said last week that global oil supply could decline by 5.7 million barrels per day this year, or around 6 per cent, as Gulf flows remain disrupted.

Oil prices had already risen 8 per cent last week, crossing $100 a barrel for the first time since July. Further disruption to Saudi exports or major shipping routes could push prices higher and add to inflationary pressure across major economies.