Saudi Aramco Tells European Refiners: No Crude Next Month

Saudi Aramco has told European refining customers they will not receive their contracted crude next month after the kingdom’s East-West pipeline was knocked offline by a drone attack. Saudi Aramco told at least two oil refining customers in Europe that they will be allocated no crude next month under long-term agreements after the kingdom’s key pipeline to the Red Sea was attacked, people informed of the decision said.

The decision applies to all European buyers, meaning term customers across the continent now need to scramble for replacement barrels heading into winter.

What actually happened

Saudi Arabia was forced to shut its East-West pipeline last week after it was attacked by drones. The line is due to partially restart within days and be fully back up and running within six weeks, a person familiar with the matter said on Wednesday.

The 7 million barrel-per-day East-West line carries crude from fields near the Mideast Gulf to the Red Sea port of Yanbu, bypassing the Strait of Hormuz, where tanker traffic has collapsed during the Gulf war. Without that route, the barrels simply cannot reach European buyers on their normal schedule.

Panic buying is already underway

European refineries typically lift Saudi crude from Egypt’s Mediterranean port of Sidi Kerir, which is connected to the Red Sea via a pipeline. The pipeline halt caused panic buying from some of Aramco’s customers. Poland’s Orlen SA issued more than ten tenders since Friday in a race to secure alternative supplies.

European countries in the OECD imported 577,000 barrels a day of crude from Saudi Arabia in June, the International Energy Agency said in its monthly Oil Market Report. That is the size of the hole refiners now need to plug on short notice.

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Saudi Arabia is rerouting, not cutting

Even as European supply dries up, Saudi Arabia has ramped up exports from its Gulf port of Ras Tanura, inside the Strait of Hormuz, according to Reuters, which cited multiple trade sources. Aramco has sold roughly 60 million barrels of crude for loading via ship-to-ship transfer at the Omani port of Sohar this month and next, lifting Gulf exports to an average of 1 million to 1.5 million barrels per day, similar to or slightly higher than August levels.

Chinese and South Korean refiners are among the top buyers of the spot supplies, with some volumes also going to India and Japan, according to the sources. In other words, the barrels are moving east, not west.

Price reaction and Wall Street view

Brent crude trades around $103 a barrel on Friday morning, while WTI trades at $101. The rerouting to Asia has helped cap the move, but the European product market is another story.

The chaos in the Middle East prompted JPM’s head of commodities, Natasha Kaneva, to write a wild note to clients on Thursday, warning: “For the first time since the start of the Iran conflict, we don’t have a baseline view. We simply don’t know how to model the endgame.”

Options market and stocks to watch

Watch the majors and refiners for flow as traders position around European product tightness and higher feedstock costs:

• XOM and CVX: watch for upside interest as Brent holds above $100 and Atlantic-basin crude differentials widen.
• VLO and MPC: refiners could see crack spread benefits if European diesel tightens into winter.
• USO: the cleanest proxy for headline-driven crude moves as the East-West pipeline restart timeline evolves.
• FRO: tanker names to watch as ton-miles shift with more barrels moving out of the Gulf to Asia rather than the shorter Red Sea route to Europe.

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