Middle Eastern crude oil prices surge! Omani crude oil climbs to $132, triggering another oil rush.
The Middle East crude oil market came under renewed pressure. Following the drone attack that forced the closure of a key Saudi oil pipeline, prices for crude delivered outside the Strait of Hormuz surged, fueling concerns about further tightening of regional supply and beginning to impact inflation expectations and the bond market.
On September 16, Bloomberg reported that Omani crude oil futures prices rose to $132.09 per barrel, widening the premium over international benchmark Brent crude to nearly $24, a new high since March. UAE Murban crude oil prices also rose to approximately $124 per barrel, approaching levels seen at the beginning of the conflict. Meanwhile, Saudi Aramco's delays in some crude oil deliveries due to the attacks further pushed up European crude oil prices.
With some supply disruptions, buyers began vying for alternative sources outside the Strait of Hormuz, leading to a significant divergence in regional crude oil prices. Rising oil prices have also become a key inflationary factor again, pushing up bond yields and increasing uncertainty about the Federal Reserve's future policy path.
Saudi pipeline shutdown disrupts millions of barrels of crude oil supply
Saudi Arabia's East-West oil pipeline was attacked by multiple drones last week and subsequently forced to shut down. Since tensions escalated in the Strait of Hormuz, the pipeline has been a vital conduit for Saudi Arabia's crude oil exports; the shutdown means millions of barrels of oil will be affected daily, while the market is currently facing significant supply pressure.
Florence Schmit, senior energy strategist at Rabobank, said: “The suspension of the East-West pipeline—even if only temporarily—shifts pressure back onto transit routes through the Strait of Hormuz. This in itself creates a new wave of uncertainty, given the recent surge in attacks on passing ships.”
It remains unclear to what extent Saudi Arabia's efforts to increase exports via the Strait of Hormuz will compensate for the supply gap caused by the pipeline shutdown. Whether the pipeline can resume operation, and whether Saudi Arabia's other export channels can remain stable, will be key areas of market focus going forward.
Outside of Hormuz, crude oil premiums surge
The strengthening of Omani and Murban crude oil prices is related to their delivery locations being outside the Strait of Hormuz. The current premium of nearly $24 for Omani crude over Brent reflects buyers' concerns about supply within the Persian Gulf and risks associated with passage through the strait.
Although some oil tankers are still able to pass through the Strait of Hormuz, the increased risk of attacks on ships is making buyers more inclined to target cargoes outside the strait. The combined effects of the attacks on Red Sea shipping and Saudi pipelines have further exacerbated the tension in regional crude oil supply.
The supply shock is spreading to broader financial markets. Rising oil costs could increase inflationary pressures and push up bond yields; if high oil prices persist, market expectations regarding the Federal Reserve's policy path may be further adjusted. Currently, the key variables for the market remain when Saudi Arabia's East-West pipeline will resume and whether Saudi Arabia can compensate for the affected supply through other export channels.
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