Oil prices hit $108 per barrel as Saudi Arabia's pipeline shutdown threatens crude exports, squeezes replacement supplies and could leave global markets undersupplied, Rystad Energy said in a Monday note.
Janiv Shah, Vice President, Commodity Markets - Oil at Rystad Energy, said the sharp move in oil prices reflects growing concern that the market could lose a significant volume of crude supply.
"The broader Middle East conflict is already putting a premium on crude, and the loss of Saudi Arabia's East-West pipeline adds another major constraint," Shah said.
Shah said the market has limited the initial price response because Saudi inventories may support exports for five to seven days, but prices could rise quickly if the disruption lasts longer.
"Supply is becoming a prized commodity, and without greater clarity on where replacement barrels will come from, we wouldn't be surprised to see prices push higher in the short term," he added.
Traders should focus on Yanbu export volumes rather than the East-West pipeline's 7 million-barrels-per-day capacity when assessing the immediate supply impact, he said.
Yanbu crude and condensate loadings ranged from 2.6 million b/d to 4 million b/d in early September, before falling to a seven-day average of 2.6 million b/d.
If the pipeline records no flows, that 2.6 million b/d represents the approximate volume at risk once Saudi Arabia exhausts crude already stored at Yanbu, Rystad said.
An April attack on a pumping station provides the closest recent comparison, with Saudi Arabia restoring full capacity within seven days, although current satellite imagery suggests broader damage.
Riyadh halted the pipeline to limit risks but has yet to disclose the extent of the damage, how many pumping stations remain affected or when crude flows could resume.
Yanbu crude stocks could sustain exports for about three days, although available coverage may range from two to six days depending on inventories at the time of the shutdown.
Even 24 million barrels in fully stocked tanks would support exports for only six to eight days, making Aramco's cargo scheduling worth watching as storage levels decline, Rystad said.
The pipeline shutdown will disrupt Saudi crude flows through the Bab el-Mandeb Strait, the Suez and the Suez-Mediterranean pipeline, reducing the barrels available for both southbound and northbound shipments.
Saudi Arabia had shifted more Yanbu barrels toward Suez as Houthi threats grew, sending roughly 70% of exports through Suez and the Suez-Mediterranean system.
China, Taiwan and India could feel the disruption first through delayed Saudi cargoes, while Japan and South Korea have some near-term cover from barrels already positioned at Sidi Kerir.
European refiners may remain insulated while Mediterranean inventories and northbound Saudi cargoes continue to cover their allocations.
Asian buyers will struggle to replace Saudi medium sour crude, forcing them to compete for a mix of substitutes across the sweet-to-sour and light-to-medium spectrum, including ESPO, WTI Midland, Canadian, West African, Oman, Murban, and Upper Zakum supplies.
Mediterranean refiners will compete for sweeter blends such as the CPC Blend, Azeri and North African crude, driving up prices, differentials, freight, prompt spreads and feedstock costs.
A month-long Yanbu shutdown could remove 78 million barrels to 120 million barrels from export availability, with inventories and deferred cargoes helping the market absorb the initial shock.
Longer and more expensive shipping routes could send more US and Latin American crude to Asia, while Europe turns to regional and Atlantic supplies.
Extending the outage to two months could put 156 million barrels to 240 million barrels of exports at risk, forcing Asian refiners to adjust crude purchases and potentially trim runs.
Asian refiners may source more WTI Midland, Canadian, Brazilian and West African crude, while European buyers compete for North Sea, CPC, Azeri and Mediterranean barrels.
Additionally, longer replacement routes would tie up vessels for extended periods, reducing effective tanker availability and making it harder for refiners to secure prompt crude supplies. Freight markets are already grappling with tightness in vessel availability.
A three-month outage could put 230 million to 360 million barrels of Yanbu exports at risk, creating a supply gap that spot-market reallocations alone could not fill.
Less flexible Asian refineries may cut production if replacement crude proves unavailable, unsuitable or too costly after freight, while more complex plants could adjust crude blends but face weaker margins.
Strategic petroleum reserves and commercial stocks could help cover delayed Saudi barrels, but they cannot replace lost capacity and would leave markets vulnerable to further disruptions.
Rystad expects the supply gap to widen materially, with the loss of roughly 3 million b/d from Yanbu taking about four weeks to fully reach refinery operations.
Rystad expects both oil benchmarks to remain supported near term, with Dubai and sour crude differentials likely to gain the most until Saudi exports resume through another route.