Saudi Arabia Cuts Europe Off From October Crude as Gulf Exports Surge

Saudi Aramco has told European term customers they will receive no Saudi crude in October, even as the kingdom pushes roughly 60 million barrels back through the Persian Gulf after damage to its East-West pipeline.

At least two European refiners were told their October allocations are zero, Bloomberg reported Friday. People familiar with the decision said it applies to all European term buyers.

While Saudi Aramco seems to have found a way to move some of the crude that was stranded by the East-West pipeline, Europe is on the wrong side of the workaround.

The East-West pipeline had been moving 4 million to 5 million barrels per day across Saudi Arabia to Yanbu, bypassing the Strait of Hormuz. Crude from Yanbu could move through Egypt’s SUMED system to Sidi Kerir on the Mediterranean, giving European refiners access to Saudi barrels without entering the Gulf.

The pipeline attack stopped that flow, and Europe was left scrambling.

Aramco has since sold about 60 million barrels from its Persian Gulf export terminal at Ras Tanura for September and October loading. Those barrels will move through Hormuz and undergo ship-to-ship transfers near Sohar, Oman. The program puts roughly 1 million to 1.5 million bpd of Saudi Gulf exports back into the market—with buyers in China, South Korea, India and Japan, and decidedly not Europe.

Oil futures have responded accordingly. Brent was trading around $104.30 Friday and WTI near $102, well below Brent’s move above $108 earlier this week.

Europe does not benefit. Gulf barrels headed west have to clear Hormuz and the Red Sea, where shipping has also come under attack, or spend almost five weeks sailing around Africa. Dated Brent, the benchmark for physical European crude, topped $130 this week.

Poland’s Orlen was already buying North Sea barrels and seeking U.S. and Kazakh crude after Saudi September cargoes were delayed or canceled.

U.S. Energy Secretary Chris Wright said Tuesday that crude should be flowing through the East-West pipeline within days. Aramco is indeed targeting a return of about half capacity within days, but full capacity is unlikely for another six weeks.

The market spent days staring at 4 million to 5 million bpd potentially stranded behind a damaged pipeline, and Aramco has found an outlet for some of it, but it’s Asia, not Europe, that will be the winners, because if the refiner reports are true, Europe’s October term allocation is a bit fat zero.

By Julianne Geiger for Oilprice.com