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.

Gold prices declined on Tuesday as investors assessed higher US Treasury yields, a firmer dollar and expectations for the Federal Reserve’s upcoming interest-rate decision.

Spot gold was down 0.2% at $4,290.39 an ounce at 02:16 ET, following a decline of more than 1% in the previous session. Gold futures fell 0.5% to $4,330.57.

Elsewhere in precious metals, spot silver declined 0.2% to $63.12 an ounce, while platinum rose 0.2% to $1,769.49. The US Dollar Index increased 0.2% to 99.63.

Fed Rate Expectations Remain in Focus

Financial markets were assigning an approximately 92% probability to a Federal Reserve interest-rate increase this week.

The shift in rate expectations has coincided with higher Treasury yields. The benchmark 10-year US Treasury yield briefly reached 5% on Monday, its highest level in almost three years.

Higher interest rates increase the yields available on interest-bearing assets, which can affect demand for non-yielding investments such as gold.

Spot gold reached a five-week low on Monday and has fallen more than 3% since the beginning of September. The metal had traded above $4,600 an ounce in late August.

Energy Prices Add to Inflation Considerations

Investors were also assessing the implications of higher oil prices following the shutdown of Saudi Arabia’s East-West pipeline after attacks last week.

The pipeline had been used to transport Saudi crude while shipping through the Strait of Hormuz remained restricted.

Saudi authorities have not provided a timeframe for restarting the pipeline or indicated how quickly alternative shipments could compensate for the affected volumes.

The increase in energy prices has added to market attention on the inflation outlook ahead of the Federal Reserve’s policy decision.

OCBC Forecasts Gold at $4,600 by December

OCBC raised its forecasts for precious metals, citing higher prevailing prices, increased investor participation and structural demand.

Chez Anbu, OCBC’s head of wealth advisory, said the rise in gold prices during August reversed the softer performance recorded earlier as macroeconomic conditions changed.

The bank now forecasts gold at $4,600 an ounce by December 2026. Its forecast for silver stands at $69.70 an ounce.

Gold was also trading above the approximately $4,000 level reached during an earlier market correction.

Oil prices advanced on Tuesday as markets continued to assess potential supply disruptions following further Houthi attacks on Saudi Arabia and the postponement of talks concerning shipping through the Strait of Hormuz.

Brent crude futures rose 2.0% to $107.83 per barrel by 04:19 ET. US West Texas Intermediate futures gained 2.1% to $103.50 per barrel.

Oman said a meeting scheduled for Monday between Iran and Gulf states concerning the reopening of the Strait of Hormuz had been postponed. No replacement date was announced.

Saudi East-West Pipeline Remains Offline

Iran-aligned Houthi forces in Yemen carried out additional attacks against targets in Saudi Arabia on Monday while maintaining operations around the Red Sea and Bab al-Mandab Strait.

The attacks followed strikes the previous week that took Saudi Arabia’s East-West oil pipeline offline.

Analysts cited in the source estimated that further disruptions in the region could affect supplies equivalent to an additional 4%-5% of the global total.

“Oil prices remain firmly supported, with that floor unlikely to give way until markets get clearer visibility on Saudi supply after the East–West pipeline shutdown,” ING analysts said in a note.

Hormuz Oil Traffic Remains Below Pre-Conflict Levels

Approximately one-fifth of global oil supplies passed through the Strait of Hormuz before the conflict between the US and Iran began in late February.

Oil flows through the waterway have since remained at a fraction of their earlier levels following restrictions on maritime traffic.

The delay to the planned meeting in Oman left the timing of negotiations over the reopening of the strait uncertain.

Washington and Tehran Disagree Over Peace Talks

US President Donald Trump said on Monday that Iran was seeking a peace agreement, repeating comments he has made during the conflict.

Tehran rejected the assertion, saying negotiations would not take place until its conditions were satisfied.

Iran also said the US would need to adhere to the terms of a June ceasefire agreement that has since expired.

The statements from Washington and Tehran left the timing of further diplomatic negotiations and any restoration of shipping through the Strait of Hormuz uncertain.

European and British wholesale natural gas prices edged lower on Tuesday after reaching their highest levels since 2023 in the previous session.

The benchmark Dutch front-month TTF contract fell 0.7% to approximately €82.80 per megawatt-hour, compared with Monday’s peak of €83.40.

In Britain, the equivalent NBP wholesale gas contract declined 0.7% to 200.10 pence per therm after reaching multi-year highs.

European Gas Storage at Around 68%

European underground natural gas storage facilities were approximately 68% full, according to data from Gas Infrastructure Europe, below the five-year seasonal average.

The storage position has increased attention on potential disruptions to LNG supplies, particularly those associated with shipping through the Strait of Hormuz.

JERA Chief Executive Yukio Kani said on Monday that lower European storage levels increase the region’s exposure to prolonged shipping disruptions around the strait and competition for spot LNG cargoes.

Brent Crude Rises Above $113

Brent crude increased 1.2% on Tuesday to more than $113 per barrel.

Saudi Arabia blamed Iran-backed groups for an attack on its East-West pipeline and said the resulting disruption could affect supplies equivalent to as much as 4% of global crude consumption.

Further Houthi attacks on Red Sea shipping routes have also affected maritime traffic in the region.

A diplomatic meeting in Oman concerning the passage of tankers through the Strait of Hormuz was postponed, while Qatari LNG export flows through the Persian Gulf remained restricted.

Markets Await Federal Reserve Decision

Energy markets were also monitoring monetary policy developments following the European Central Bank’s decision last Thursday to increase its key interest rate by 25 basis points to 2.50%.

The US Federal Reserve was due to begin its two-day policy meeting on Tuesday. Financial markets were pricing in approximately a 90% probability of a 25-basis-point rate increase.

Higher energy costs remain one of the factors being monitored for their potential impact on inflation and the outlook for monetary policy.

GSK (LSE:GSK) was upgraded to “buy” from “hold” by Berenberg, with the broker raising its price target to £22 from £20 following an assessment of the drugmaker’s pipeline and recent business-development activity.

GSK shares were up 0.4% at £18.62 in early London trading.

Berenberg said GSK was trading at 9.6 times estimated 2027 adjusted earnings, compared with 12.4 times for its European pharmaceutical peers, representing a discount of approximately 23%.

The broker said it believes the size of the discount is no longer warranted, citing changes in the breadth of GSK’s development pipeline and expected returns on research and development.

Berenberg Highlights GSK Phase 3 Pipeline

Berenberg said 10 of GSK’s 11 novel Phase 3 assets originated externally through business-development transactions.

According to the broker’s estimates, six of those late-stage assets could each generate peak annual sales of at least £2 billion.

Berenberg expects GSK’s pipeline to help offset the effect of patent erosion affecting dolutegravir. It forecasts group sales of approximately £39 billion in 2031, compared with consensus expectations of around £36 billion and GSK’s guidance for sales of more than £40 billion.

The broker identified recently launched products including Exdensur and Blenrep among potential contributors to future revenue. It also highlighted bepirovirsen, Nuvalent’s lung cancer assets and GSK’s oncology antibody-drug conjugate programmes with Hansoh.

Cost Savings Target £1.9 Billion Annually by 2029

Berenberg also pointed to GSK’s cost-reduction programme, which targets annual savings of £1.9 billion by 2029.

The broker expects the savings to support research and development expenditure and contribute to stable or improving margins as higher-margin oral HIV products begin to face patent erosion from 2028.

Regulatory and Clinical Updates Expected

Berenberg identified several upcoming regulatory and clinical events across GSK’s pipeline.

The broker expects US regulatory decisions on bepirovirsen for hepatitis B by October 26 and neladalkib for second-line ALK-positive lung cancer by November 27.

Further Phase 3 and proof-of-concept results are expected over the following 12 months from programmes covering small-cell lung cancer, HIV, asthma, food allergy and bronchiectasis.