New Delhi: Brent crude prices surged to around $110 a barrel on Monday, rising nearly 5 per cent after reports that Saudi Arabia’s East-West pipeline could remain out of service for several weeks, intensifying concerns over global oil supplies amid the Iran war.
The immediate trigger for the rally was Saudi Arabia’s decision to shut its 1,200-km East-West pipeline after drone strikes launched from Iraqi territory damaged the critical oil route. The pipeline has the capacity to transport up to 7 million barrels of crude per day and provides Saudi Arabia with an alternative route to the Red Sea, allowing shipments to bypass the strategically important Strait of Hormuz.
The outage is expected to continue for several weeks, with the Associated Press reporting that repairs could take between three and five weeks, although partial operations may resume earlier. The prolonged disruption has added to an already strained oil market, with tanker traffic through the Strait of Hormuz remaining well below normal levels because of the ongoing conflict.
The latest supply shock has also come as diplomatic efforts to ease disruption to oil shipments suffered a setback. A planned meeting between Iran and Gulf states in Oman on Monday was postponed, weakening hopes of an immediate agreement that could help restore smoother shipping through the Strait of Hormuz.
Saudi Arabia’s own crude production has already declined sharply. OPEC data showed that the country’s output fell by 1.9 million barrels per day in August to 6.238 million bpd, its lowest reported level since 1990, further tightening the supply outlook.
At the same time, demand-side pressures are adding to the strain on the market. China stepped up crude purchases in August as its inventories declined, while the US Strategic Petroleum Reserve remains close to historically low levels, limiting the cushion available to absorb a prolonged supply disruption.
With both major routes for Gulf oil exports facing disruptions, traders are increasingly focused on the ability of existing inventories to absorb the shock. A prolonged shutdown of the Saudi pipeline combined with continued restrictions on tanker traffic through the Strait of Hormuz could leave global markets increasingly exposed to further supply shortages.
(IANS)
