Oil Slips Through Hormuz Under the Radar as Saudi Pipeline Revival Eases Supply Fears

Oil did not wait for a deal to be signed before retreating, as improving supply conditions helped calm the market. At the close of trading on Tuesday, September 29, Brent crude for December delivery fell 1.7% to $96.16 a barrel, while U.S. West Texas Intermediate for November delivery dropped 3.5% to $89.38.

Bloomberg placed the return of Saudi oil flows and increased shipments through Hormuz at the center of the decline.

At the heart of this shift is Saudi Arabia’s East-West Pipeline, which carries oil from the country’s eastern fields to the Red Sea coast and allows some exports to bypass the Strait of Hormuz. The revival of the route, after disruptions caused by drone attacks, means more than simply repairing infrastructure: concerns over whether oil supplies can reach customers have eased with the restoration of this route.

Trading Economics, in an update on Wednesday, September 30, reported that Brent had returned to around $97 a barrel and identified uncertainty over Iran-U.S. negotiations as a factor supporting prices. The recent decline has eased some of the supply disruptions, but it is still too early to conclude that the risks have disappeared.

Pipeline Revival: The Export Route Reopens

Bloomberg reported on September 28, citing people familiar with the matter, that flows through the East-West Pipeline had reached at least 3.5 million barrels per day, around half of its nominal capacity of 7 million barrels per day. According to the report, loading operations at Yanbu had resumed the previous week.

Reuters also confirmed the revival of the route but reported lower figures: around 2 million barrels per day, citing an industry source, and 2.65 million barrels per day based on Kpler estimates, with expectations that flows would rise to between 3 million and 4 million barrels per day. The common point across the reports is clear: the pipeline has been restored, but a full return to capacity has not been confirmed.

From an economic perspective, the importance of the pipeline lies in turning available oil into a commodity that can actually be delivered. Oil that remains trapped behind export restrictions cannot meet buyers’ needs. But simply producing oil without considering the ease of moving it into the market leaves supply concerns unresolved.

A Crisis in the Fuel Market?

A new estimate from JPMorgan highlights the most important difference in the recovery of exports: Middle Eastern crude oil flows have reached 17.5 million barrels per day, or 98% of their pre-war level, while exports of products such as gasoline and diesel remain around 3 million barrels per day, only 58% of their previous level.

This gap explains the apparent contradiction in the market. More crude oil can leave the region while finished fuels remain scarce and expensive. Tankers can solve part of the transportation problem; damage to refineries and restrictions on refined-product output are a separate issue.

Trading Economics has also emphasized improving Middle Eastern supply and the resumption of exports from Yanbu in its explanation of recent market developments. At the same time, JPMorgan analysts have warned that increased tanker traffic does not necessarily indicate improved safety. The rise may reflect greater market resilience and continued operations despite the risks.

Moving Under the Radar: How Is Oil Getting Through Hormuz?

The Associated Press reported that some cargoes are being moved through the Strait at night, with vessels switching off their tracking systems and conducting ship-to-ship transfers outside the strait. The mechanism operates with U.S. oversight and support and increases the cost and complexity of transportation.

At the same time, U.S. officials have presented the increase in oil traffic as evidence of the success of their operations.

U.S. President Donald Trump, in remarks on September 27 reported by Agence France-Presse, also said that more than 20 million barrels of oil had passed through the strait over the weekend.

Chris Wright, the U.S. energy secretary, said in an interview with Fox News that the current average flow was close to 13 million barrels per day and that on one day the previous week, the volume passing through the strait had exceeded 20 million barrels.

He said energy-price pressures were driven more by limited refining capacity than by the flow of crude oil.

Why Has the Market Reduced Part of the Risk?

Rebecca Babin, senior energy trader at CIBC, told Bloomberg that increased oil flows through Hormuz and the restart of the Saudi pipeline were reducing supply pressure on the market. At the same time, she outlined two different potential consequences for Iran: reduced leverage over oil traffic could create conditions for negotiations, or it could increase the incentive to escalate tensions in an effort to regain that leverage.

Meanwhile, Sal Kavonic, an energy analyst, told Bloomberg that increased flows through Hormuz, the absence of further escalation by Iran and the postponement of a potential U.S. diesel-export restriction were among the factors moderating prices. He said geopolitical risks and transportation constraints continued to support elevated prices.

Taken together, these analyses suggest that part of the oil price reflects the possibility that future barrels may fail to reach the market. Any development that reduces that possibility can push prices lower, even if political disputes remain unresolved. The recovery in supply has removed part of the risk premium from prices, but the danger of another disruption remains.

U.S. Emergency Oil Reserve Release

The U.S. Department of Energy issued a solicitation on September 29 for the exchange of up to 40 million barrels of oil from the Strategic Petroleum Reserve. The program is part of the United States’ previous commitment to contribute 172 million barrels to a coordinated 400-million-barrel plan involving members of the International Energy Agency.

Deliveries under the contracts covered by the solicitation are scheduled for November and December, and recipient companies will be required to return the oil at a later date along with an additional volume.

The new announcement therefore supports expectations of additional supply in the coming months; not all of this oil has entered the market yet. The role of strategic reserves is to provide a buffer during disruptions, and continued reliance on them alone is not considered a sustainable solution to a supply crisis.

Less Reliance on Hormuz Does Not Mean the Risk Is Gone

The return of the East-West Pipeline reduces Saudi Arabia’s reliance on Hormuz for part of its exports. At the same time, increased maritime transfers through the strait itself show that Hormuz remains one of the main supply routes for global markets, even as the oil industry develops more expensive ways to move cargo through it.

Taken together, these developments suggest that the market’s immediate sensitivity to supply disruptions has eased. However, bypassing one bottleneck does not eliminate the entire risk: the alternative route also depends on the security of pipelines, terminals, tankers and the maritime route after loading.

The recent decline in oil prices is the market’s response to improved prospects for delivering barrels; maintaining these conditions will depend on the continuation of export flows. Saudi Arabia’s pipeline and covert movements through Hormuz have relieved part of the pressure, but the gap between the recovery of crude-oil flows and a return to normal conditions in energy markets will still be determined by damaged refineries, transportation costs and the risk of renewed attacks.

Written by Danial Rahimi