HSBC estimates that the temporary shutdown of Saudi Arabia’s East-West crude pipeline could push the global oil market into a deficit of approximately 6 million barrels per day during part of September and October.
The pipeline, which transports Saudi crude from the Gulf to the Red Sea without passing through the Strait of Hormuz, is expected to remain mostly offline for three to five weeks for repairs following an attack last week.
Oil prices moved higher on Monday following reports about the expected duration of the shutdown.
Analysts led by Kim Fustier called the outage “a negative surprise” compared with HSBC’s base-case assumptions. The bank had expected Saudi Arabia’s East-West pipeline and the UAE’s ADCOP system to provide alternative export capacity while shipping through the Strait of Hormuz remained disrupted.
Saudi Export Volumes Had Already Declined
According to HSBC, Saudi oil exports fell to around 3 million barrels per day in August from between 4 million and 4.5 million bpd previously as more exports were routed through the country’s west coast.
The analysts calculated that losing 3 million bpd for one month would remove approximately 90 million barrels from supply.
HSBC said cumulative global oil inventory draws since February have exceeded 500 million barrels.
Based on these factors, the bank estimates that the global market could temporarily face a deficit of around 6 million bpd between mid-September and mid-October, which it described as “the largest implied deficit since the start of the conflict.”
HSBC Monitors Potential Early Pipeline Restart
Saudi west-coast export logistics had already been affected before the pipeline shutdown, according to HSBC.
Loadings at Yanbu had declined, while some Saudi exports were redirected north through Egypt’s Suez Canal and SUMED pipeline following the announcement of a Houthi blockade on July 20.
HSBC cited Saudi Aramco’s previous restoration work at the Ras Tanura refinery following an attack in March when assessing the potential repair schedule.
“A key uncertainty is whether repairs could be completed sooner than 3-5 weeks,” the analysts said.
An earlier restart could reduce the volume of supply affected by the shutdown.
Middle East Disruptions Affect Refined-Product Flows
HSBC also assessed the factors behind higher refined-product prices.
The bank’s analysis differs from the US administration’s view that Ukrainian attacks on Russian refineries have been the main factor behind record US diesel prices.
HSBC said it continues to see “the Middle East shock as the dominant driver of the current refining tightness.”
The bank estimated that refined-product loadings from the Gulf have declined by 3.4 million bpd, including approximately 2.1 million bpd of diesel, jet fuel and gasoline.
Brent Could Reach $120 in HSBC Scenario
HSBC said the East-West pipeline outage increases the upside risk to its base-case oil price forecasts.
The bank also said the disruption raises the probability of its more bearish “Stalemate” scenario, under which Brent crude could potentially reach $120 per barrel.
HSBC identified three indicators for assessing the impact of the outage: signs of a partial pipeline restart, loading activity at Yanbu and the pace of global inventory declines.
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