EMEA crude futures dropped in after-hours trading on Wednesday as Saudi Arabia sought to cushion the impact of its damaged East-West pipeline by offering more crude cargoes via Oman, amid expectations that the key export route could resume operations within days.
Brent crude futures fell 2.8% to $105.70 per barrel, while Dubai 1st Line Futures retreated 3.3% to $101.68/bbl.
Soojin Kim, research analyst at MUFG, said crude prices retreated after a sharp supply-driven rally, with Brent falling below $107/bbl, while WTI traded near $104/bll.
Saudi Arabia is offering additional crude cargoes to Asian refiners through ship-to-ship transfers off Oman's Sohar port, according to media reports.
The arrangements allow Saudi crude to be transferred outside the Strait of Hormuz, providing an alternative route after damage to the East-West pipeline disrupted exports through Yanbu.
Saudi Aramco has reportedly offered Asian term buyers its Arab Light, Arab Medium and Arab Heavy grades for loading off Sohar. The state-owned energy giant has made at least two similar offers in recent weeks, according to media reports.
Pressuring prices, the Trump administration is reportedly trying to reassure the market that Saudi Arabia's damaged East-West pipeline will restart operations in days.
On Tuesday, US Energy Secretary Chris Wright said that the pipeline should be back in operation within days, although other estimates have suggested repairs could take considerably longer.
The outage has nevertheless disrupted physical crude markets. Saudi Arabia has suspended Yanbu loadings and informed some European customers of cancellations for September cargoes, according to media reports.
Kpler strategists said that the attack on Saudi Arabia's East-West Pipeline marks another escalation in a conflict the global oil market cannot absorb indefinitely.
The analysts said that without the East-West Pipeline, Saudi crude exports could ultimately fall by about 3.5-4 million barrels per day, depending on the severity and duration of the disruption.
Meanwhile, the growing tightness in diesel markets, including in the US, China and Russia, has raised speculation about possible US export controls on crude oil and refined products.
Phil Flynn, an analyst at The PRICE Futures Group, said the Gulf Coast diesel crack spread had surged to levels once considered unthinkable, rising from above $100/bbl earlier this month toward $118/bbl.
Tom Kloza, chief energy advisor at Gulf Oil, said overnight US prices advanced to $4.37/gal for gasoline and $6.31/gal for diesel.
"Despite slightly lower futures prices today, you'll see these numbers rise at the pump as marketers struggle to catch up to epic wholesale increases," Kloza said.
On the supply front, US commercial crude oil inventories decreased by 600,000 barrels to 423.4 million barrels in the week ended Sep. 11, the Energy Information Administration said in its weekly report released Wednesday. The draw contrasted with a 7.1 million-barrel American Petroleum Institute build.