Oil prices firmed on Monday after an attack last week on Saudi Arabia’s East-West crude pipeline, which HSBC said would keep the line mostly offline for three to five weeks for repairs. Analysts led by Kim Fustier called the outage a negative surprise relative to the bank’s base case, while noting that Saudi Aramco has a strong restoration track record and that a key uncertainty is whether repairs could be completed sooner than the three-to-five-week window.
HSBC said the disruption could temporarily shift the global oil market into a deficit of roughly 6 million barrels per day between mid-September and mid-October, the largest implied deficit since the start of the conflict. The bank estimated that removing Saudi export volumes for a month would imply a supply loss of about 90 million barrels. Saudi oil exports fell to 3 million barrels per day in August, down from 4 million to 4.5 million barrels per day earlier.
The bank added that cumulative inventory draws since February have exceeded 500 million barrels. A March Iranian attack caused disruptions at Saudi Arabia’s Ras Tanura refinery, and a Houthi blockade was announced on July 20.
HSBC also said product loadings from inside the Gulf have fallen by 3.4 million barrels per day, including 2.1 million barrels per day of diesel, jet fuel and gasoline. The bank continued to see the Middle East shock as the dominant driver of current refining tightness, pushing back against the U.S. administration’s view that Ukrainian attacks on Russian refineries are the main driver of record U.S. diesel prices.
In its more bearish 'Stalemate' scenario, HSBC said Brent prices could rise to $120 per barrel.
