Oil prices fell on Wednesday as the Saudi pipeline closure sent oil prices lower alongside fresh data showing a sharp rise in US crude inventories, with traders weighing conflicting assessments of how long it will take to restore flows through one of the world’s most heavily used oil arteries.
Brent crude, the international benchmark, dropped 1.02% to $107.64 a barrel for November delivery. US West Texas Intermediate (WTI) futures for October fell 1.29% to $104.46 per barrel.
Inventory build adds pressure on top of Saudi pipeline closure
The price falls were partly driven by inventory data from the American Petroleum Institute, cited by Reuters, which showed US crude inventories rose by 7.1 million barrels in the week ended 11 September. That compares with analyst expectations for a draw of about 1.6 million barrels, making the build a clear surprise for the market.
Brent crude, gasoline and distillate inventories all rose over the same period, adding to the downward pressure on prices at a moment when supply concerns from the Middle East have been keeping sentiment on edge.
How bad is the damage, and how long will repairs take?
The immediate focus for traders is the condition of Saudi Arabia’s East-West Crude Oil Pipeline, a Al Jazeera-reported 1,200km (746-mile) conduit stretching across the Arabian Peninsula that was shut following an attack by Iran over the weekend. A pumping station in Khurais suffered major damage, bringing oil flows through the pipeline to a halt, according to The Business Standard.
The question of how quickly that can be fixed is generating sharply different answers. US Energy Secretary Chris Wright told CNBC on Tuesday that the closure was a brief interruption lasting only days. Andy Lipow, president of Lipow Oil Associates, took a far more cautious view in a note on Monday, saying that ‘judging from the on-line pictures, it will take months to repair.’
A third estimate, from two regional officials speaking to the Associated Press, put the timeframe at three to five weeks, according to the Boston Herald. The wide gap between these assessments reflects genuine uncertainty about the extent of the damage and adds to the difficulty traders face in pricing in the supply risk.
The pipeline’s importance to global oil flows can be gauged by recent throughput figures. Loadings out of Yanbu, the Red Sea port at the western end of the pipeline, had averaged over 4 million barrels per day since June, compared with just 973,000 barrels per day during the same period last year, according to Pipeline Technology Journal. That dramatic ramp-up makes any prolonged outage considerably more consequential than the raw capacity figures alone might suggest.
Financial cost of the US-Iran conflict mounts
Beyond the immediate supply picture, traders are also tracking the broader financial toll of the conflict. A report released on Tuesday by the Congressional Budget Office, a nonpartisan US body, estimated that the US war with Iran has cost the Pentagon an estimated $38.1 billion through 1 August, with a further $2 billion to $3 billion potentially being spent for each additional month of fighting.
Joseph Dahrieh, managing director at brokerage Tickmill, laid out the market’s core concern in plain terms. ‘Looking ahead, crude is likely to remain closely tied to security conditions along Gulf export routes and the pace of repairs to Saudi infrastructure,’ he said. Any further disruption to maritime flows or a prolonged pipeline outage ‘could tighten the physical market and extend the advance in prices,’ Dahrieh added.
For now, markets are waiting on official US inventory data from the Energy Information Administration, which will either confirm or complicate the API figures. With the Saudi pipeline closure keeping oil prices sensitive to every new development, the repair timeline remains the single most closely watched variable in the market.
