Photo - Yanbu Port in the Red Sea. Source: Bloomberg
Traders familiar with state-owned Saudi Aramco’s notifications said customers who chose Yanbu will only be able to receive a fraction of their usual monthly volumes. The reason is the limited capacity of the pipeline that connects the country’s oil fields to that port. The alternative is to load in the Persian Gulf, but in this case there is still a risk of a complete halt in deliveries if the Strait of Hormuz remains closed. Traders spoke on condition of anonymity because they are not authorized to speak to the media, according to Bloomberg.
Aramco, the world’s largest oil exporter, shipped about 7.2 million bpd of crude last month – even before Iran effectively blocked the strait. Most of that volume went through the Persian Gulf terminals of Ras Tanura and Juaima. Saudi Arabia has a pipeline with a capacity of about 5 million bpd that runs through the country to the Red Sea, but the capacity of the Yanbu port itself may be below that level, according to traders’ estimates.
Saudi crude is usually sold under long-term contracts, with most of it heading to Asia. Amid the disruptions, China’s largest refiner Sinopec has already cut refinery utilization by about 10% to cope with the shortage of crude. In Japan, the authorities have started using oil from strategic reserves.
Uncertainty forces the use of dubious alternatives
Aramco’s proposed options reflect the uncertainty surrounding the conflict in the Middle East and the timing of the possible opening of the Strait of Hormuz. US President Donald Trump’s statements about the reasons for the start of the war remain contradictory: both Washington’s allies and opponents do not understand when the end of the conflict may come. At the same time, Iran has so far shown no willingness to make concessions.
Since the start of the war, which is now in its third week, Aramco has gradually increased shipments through Yanbu. The company has also taken the unusual step of putting oil shipments with loading at this port on spot tenders. However, the offer of contract deliveries through the Red Sea terminal was heard for the first time.
It is not only Asian buyers that have been affected by the cuts. Some European refineries said they received smaller contracted volumes from Aramco for next month. One major refiner did not receive any supplies at all, while another was allocated less oil than it had requested.
