Oil's next test: Saudi Arabia races to restore a key safety valve for prices

The global oil market is running out of safety nets. Prices are unlikely to fall below $100 per barrel anytime soon, analysts said, with traders increasingly pricing in a significant loss of regional supply as Saudi Arabia scrambles to restore a crucial pipeline. Saudi Arabia's closure of the East-West pipeline, a highly strategic network that transports crude oil from Abqaiq on the kingdom's eastern Gulf coast to the port of Yanbu on the Red Sea, has put 4 million barrels per day at risk and driven a sharp spike in crude prices. The development is more bad news for consumers — and comes against a backdrop of renewed hostilities between the U.S. and Iran, a lightning ground offensive by the Iran-backed Houthis along the Red Sea coast and a fresh wave of attacks on Saudi Arabia, the world's largest crude oil exporter. Analysts have emphasized that the clock is ticking for Riyadh to repair what appears to be significant damage to one of the East-West pipeline's pumping stations, warning that the longer the shutdown, the bigger the price shock. "The broader Middle East conflict is already putting a premium on crude, and the loss of Saudi Arabia's East-West pipeline adds another major constraint," Janiv Shah, vice president of oil markets for Rystad Energy, said in a research note. "The relatively contained price reaction suggests the market still expects Saudi inventories to cushion exports in the near term, but if the disruption extends beyond the five-to-seven-day inventory cushion, that could change quickly," Shah said. International benchmark Brent crude futures for November expiry rose 2% to $107.82 per barrel on Tuesday morning, extending gains after jumping more than 21% over the past month. U.S. West Texas Intermediate futures for October expiry, meanwhile, traded nearly 2.2% higher at $103.58. The contract, which is up over 25% over the past month, surpassed $100 for the first time since May last week. Saudi Arabia on Friday temporarily closed the East-West pipeline as a precautionary measure following multiple attacks by drones launched from Iraq. Several people were injured in the strikes, the Saudi government said, with drones targeting a key stretch of the pipeline in the Riyadh and Medina regions. Saudi Arabia has relied on the East-West pipeline to shift crude exports away from the strategically vital Strait of Hormuz as fighting continues between the U.S. and Iran. The roughly 750-mile system is estimated to have a total design capacity of 7 million barrels per day, following recent expansions.