Oil prices fell on Wednesday even as Saudi Arabia’s damaged East-West pipeline remained offline, highlighting a crucial distinction for traders: a threatened export route is not the same as four million barrels a day disappearing from the market.
Brent crude slipped towards $108 a barrel and West Texas Intermediate traded around $105 after both benchmarks jumped to their highest settlements since May on Tuesday.
The pullback followed a surprise increase in US inventories, while traders also weighed signs that Saudi Arabia could restore at least part of the pipeline relatively quickly.
US stock build gives traders a reason to take profit
American Petroleum Institute data showed US crude inventories rose by 7.14 million barrels in the week to September 11.
Economists had expected a decline of about 1.8 million barrels, making the build a significant bearish surprise for a market that had just posted another sharp rally.
WTI settled 4.4% higher at $105.83 on Tuesday and Brent gained 2.9% to $108.75 as traders reacted to the Saudi disruption and growing pressure on Middle East shipping routes.
That left crude vulnerable to profit-taking once the inventory data suggested the immediate US market was better supplied than expected.
A firm dollar and elevated Treasury yields are adding another headwind ahead of the Federal Reserve’s policy decision, although supply developments remain the dominant driver for crude.
Saudi outage is serious, but 4% has not vanished
Saudi Arabia’s East-West pipeline has recently moved roughly 2.6 million to 4 million barrels a day towards the Red Sea, equal to as much as about 4% of global oil supply.
The route has become particularly important because it allows Saudi crude to bypass the Strait of Hormuz.
Saudi officials have attributed the attack that forced the shutdown to Iran-aligned militias operating from Iraq.
Separate Houthi advances around Red Sea shipping routes have added another layer of risk.
But shutting the pipeline does not automatically remove all of those barrels from world supply.
Saudi Arabia can use crude stored around Yanbu, redirect some exports through Hormuz and resume partial flows before damaged infrastructure is fully repaired.
US Energy Secretary Chris Wright has said operations could begin returning within days.
Other estimates are more cautious as analysts noted that partial operations could restart relatively quickly while full repairs to damaged pumping stations may require six to eight weeks.
Market is now trading the repair clock
That gap between a quick restart and a multi-week outage is what matters next.
ANZ analysts said that the immediate impact depends heavily on how much crude Saudi Arabia can draw from storage at Yanbu.
They also noted that alternative buffers, including floating and strategic stocks, are becoming thinner.
Rabobank strategist Florence Schmit told MarketWatch that the shutdown could force Saudi Arabia to redirect substantial exports back towards Hormuz just as traffic through the strait remains constrained.
Wednesday’s decline therefore does not mean the supply scare has disappeared.
It reflects a market balancing a bearish US inventory surprise against a Saudi disruption whose duration is still uncertain.
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