Oil Falls to $104 as Saudi Arabia Reroutes Crude Through Oman

Oil prices extended their decline on Thursday with Brent crude falling toward $104 per barrel as Saudi Arabia moved to reroute additional crude supplies through Oman, easing immediate concerns over disruptions to Middle East oil exports.

Brent crude oil, the international benchmark for Nigerian crude oil, fell $1.88, or 1.8 percent to $103.95 per barrel during Thursday’s trading, while U.S. West Texas Intermediate crude declined $1.77, or 1.7 percent to $100.66 per barrel.

The two-day retreat followed a sharp rally earlier in the week that pushed crude prices to around four-month highs as traders assessed disruptions to Saudi Arabia’s oil infrastructure and continuing restrictions on shipments through the Strait of Hormuz.

The latest decline was triggered by Saudi Arabia’s decision to make additional crude cargoes available to Asian refiners through ship-to-ship transfers off the port of Sohar in Oman.

The arrangement provides Saudi Arabia with another avenue for maintaining exports following attacks on its East-West pipeline, which transports crude across the kingdom to the Red Sea export terminal at Yanbu.

Crude loadings at Yanbu were suspended following the attacks, while some deliveries to European customers were cancelled, initially raising concerns that a prolonged shutdown could remove a substantial volume of Saudi supply from the international market.

Market participants estimate that an extended closure of the pipeline could affect crude flows equivalent to as much as 4 percent of global oil supply.

The East-West pipeline has become particularly important during the Middle East conflict because it allows Saudi crude to reach the Red Sea without relying on the Strait of Hormuz.

The rerouting through Oman has therefore provided some reassurance that Saudi Arabia can maintain a portion of its exports while repairs continue.

Expectations that the East-West pipeline could return to service sooner than initially feared have also weighed on crude prices.

U.S. Energy Secretary Chris Wright said crude could begin flowing through the pipeline within days. Saudi Arabia, however, has not announced an official restart date.

Assessments from oil and security sources indicate that two pumping stations were damaged, leaving uncertainty over how quickly the system can return to full capacity.

The Saudi workaround has helped crude retreat from the near-$110 levels reached earlier this week, but conditions in the physical oil market remain far from normal.

Shipping through the Strait of Hormuz remains severely constrained, keeping a substantial geopolitical premium embedded in crude prices.

Commodity vessel traffic through the waterway fell to just three ships on Wednesday, compared with 12 on Tuesday and a recent 10-day average of around 17, according to preliminary ship-tracking data. The figures may exclude vessels operating without transmitting their normal tracking signals.

The reduced traffic is significant because Hormuz remains one of the world’s most important energy corridors and disruptions to the waterway have forced producers, refiners and traders to seek alternative routes.

Saudi Arabia’s ability to move additional barrels through Oman demonstrates how global oil flows are being reorganised in response to the crisis, but alternative arrangements carry additional logistical, shipping and insurance costs.

Oil prices are consequently still trading above $100 per barrel despite the decline recorded over the past two sessions.

Additional pressure on crude came from the United States, where inventory data provided further evidence that immediate supply conditions were not as tight as markets had feared.

Brent settled Wednesday at $105.83 per barrel, down $2.92 or 2.7 percent, while WTI fell $3.40, or 3.2 percent, to $102.43. Saudi Arabia’s Oman shipments and U.S. inventory data were among the factors behind the decline.

However, the easing in crude prices has not been replicated across all parts of the energy market.

Diesel supplies remain particularly tight as disruptions to refining infrastructure in the Middle East and Russia reduce the availability of refined petroleum products.

European gasoil futures, a key benchmark for diesel, recently settled at a record high, while U.S. ultra-low-sulfur diesel futures also reached record levels.

The pressure has encouraged refiners to prioritise diesel production over gasoline as they respond to stronger margins and limited supplies.

The divergence between falling crude prices and elevated refined-product prices suggests that the immediate challenge facing the global energy market is increasingly moving beyond the availability of crude itself to the ability to refine and transport petroleum products.

Industry executives have also warned that the mechanisms that allowed the global energy market to absorb earlier disruptions are becoming weaker.

Shell and Equinor executives said inventory drawdowns, flexible shipping capacity, spare pipeline infrastructure, weaker Chinese demand and increased production from the Americas have helped cushion the impact of lost Middle East supplies, but those buffers are gradually being depleted.

For Nigeria, the retreat in international crude prices presents a mixed outlook.

Prices above $100 per barrel continue to support the value of the country’s crude exports and potentially strengthen oil-related foreign-exchange earnings.

At the same time, lower international crude prices compared with the highs reached earlier this week could eventually reduce some of the cost pressure facing domestic refiners and petroleum marketers.

Nigeria has already experienced sharp increases in petrol prices as the global oil shock raised crude and replacement costs, making the direction of international prices increasingly important for domestic inflation and household spending.