Global oil prices traded nearly 1% higher on Friday morning after attacks on Saudi Arabia’s East-West pipeline and crude-producing facilities dented output and supply capacity.
Saudi Arabia’s energy ministry on Thursday said the strikes have reduced the kingdom’s oil production capacity by about 600,000 barrels per day (bpd) and cut flows through its East-West pipeline by roughly 700,000 bpd.
A surge in prices, however, was capped as investors await ceasefire talks between the US and Iran.
Strategic bypass
The East-West Pipeline is a 1,200-kilometre-long, dual-pipe system in Saudi Arabia that carries crude oil from the Eastern Province to the Red Sea port of Yanbu, allowing exports to bypass the Straits of Hormuz. It has a capacity of up to 7 million barrels per day.
The development gains significance for India, as the pipeline was among the planned alternative routes for sourcing crude from Saudi Arabia via the Red Sea.
At 8:09 am, the June contract of Brent crude was trading at $96.65, up 0.78% from its previous close. The May contract of West Texas Intermediate rose 0.99% to $98.84 a barrel.
Hormuz tensions
Concerns over a continued closure of the Strait of Hormuz amid a fragile ceasefire between the US, Israel and Iran have also kept investors on edge. However, gains remained capped as investors and traders tracked upcoming talks between the US and Iran in Pakistan.
Sultan Al Jaber, the chief executive officer of the Abu Dhabi National Oil Company (Adnoc), on Thursday said passage through the crucial waterway was subject to “permission, conditions and political leverage” by Iran and energy security and global economic stability depended on the strait being opened “fully, unconditionally and without restriction”.
“The weaponization of this vital waterway, in any form, cannot stand. This would set a dangerous precedent for the world – undermining the principle of freedom of navigation that underpins global trade and, ultimately, the stability of the global economy.”
“An estimated 230 vessels sit loaded with oil and ready to sail. They, and every vessel that follows, must be free to navigate this corridor without condition. No country has a legitimate right to determine who may pass and under what terms,” he wrote.
The Indian crude basket has also eased after global prices fell following the ceasefire announcement. The basket price was at $115.52 per barrel.
The Indian basket of crude oil represents a derived basket comprising Sweet grade (Brent Dated) and Sour grade (Oman & Dubai average) crude oil imported by Indian refineries during each month.