MONTREAL (Oil Monster): Saudi Arabia and the United Arab Emirates are restoring crude oil exports as tanker traffic through the Strait of Hormuz improves, intensifying competition to regain Asian market share lost during months of Middle East supply disruption.
Crude exports through Hormuz averaged approximately 12 million barrels per day during the two weeks leading up to October 8, equivalent to about 80% of prewar levels, according to Kpler data cited by Reuters.
When shipments through alternative routes such as Saudi Arabia's Red Sea terminals and the UAE's Fujairah export hub are included, Middle East crude exports exceeded the prewar average of roughly 18 million bpd for much of the week ended October 3.
The gradual reopening of the Strait of Hormuz has allowed Gulf producers to restore a significant portion of the crude shipments disrupted during the Iran conflict.
Kpler estimated that crude exports through the waterway averaged approximately 12 million bpd during the two weeks preceding the October 8 report.
That represents around 80% of the volumes moving through Hormuz before the conflict disrupted one of the world's most important oil-export routes.
The recovery has allowed producers to increase output and reconnect with refiners that were forced to source alternative crude supplies earlier in the year.
When alternative export corridors are included, regional crude flows have recovered even more strongly.
Middle East crude exports exceeded the prewar average of approximately 18 million bpd for much of the week ended October 3, according to Kpler.
The additional supply has come through a combination of Hormuz shipments, Saudi Arabia's Red Sea terminals and UAE exports from Fujairah on the Gulf of Oman.
The rebound has sharply reduced the physical crude deficit that developed earlier in the conflict.
Energy Aspects estimates that the global crude supply deficit could narrow to approximately 250,000 barrels per day in October.
That compares with a deficit of almost 4 million bpd in May, when Gulf exports were far more severely constrained.
The improvement helps explain why competition for customers is becoming more important again as producers regain access to international markets.
However, a smaller physical deficit does not mean normal market conditions have returned. Freight, insurance and security costs around Hormuz remain exceptionally high.
ALSO READ: Hormuz Tanker Attacks Threaten Gulf Oil Export Recovery
The United Arab Emirates has been among the fastest Gulf producers to restore crude exports.
Kpler data show UAE crude exports have averaged approximately 3.3 million bpd since June, broadly matching levels recorded before the war.
At the same time, UAE crude production has averaged around 4.2 million bpd since June, according to Energy Aspects, compared with a prewar average of approximately 3.9 million bpd.
The country's ability to export crude through Fujairah outside the Strait of Hormuz has provided an important logistical advantage during the disruption.
ALSO READ: UAE Crude Exports Hit Record High Following OPEC Exit
The UAE can move crude from Abu Dhabi to Fujairah through an overland pipeline, allowing cargoes to load directly on the Gulf of Oman side of the Strait of Hormuz.
That infrastructure became especially valuable when tanker traffic through the strait was heavily restricted.
The ability to combine Fujairah exports with recovering Hormuz shipments has helped the UAE maintain a relatively stable presence in Asian crude markets compared with several neighboring producers.
Saudi Arabia followed a different path during the crisis.
Riyadh initially redirected large amounts of crude west through its East-West Pipeline to the Red Sea port of Yanbu, allowing exports to remain near 60% of prewar levels during much of the disruption.
That strategy came under pressure in September when the East-West Pipeline was attacked and Houthi threats increased risks around Red Sea shipping.
Saudi Arabia subsequently shifted more crude back through the Strait of Hormuz as traffic conditions improved.
ALSO READ: Saudi Aramco Resumes Crude Loadings Through Strait of Hormuz
The shift back toward Gulf export routes has allowed Saudi shipments to recover sharply.
Kpler estimated that Saudi crude exports averaged approximately 7.3 million bpd during the three weeks leading up to the October 8 analysis, close to prewar levels.
A separate Kpler estimate subsequently put Saudi Arabia's full-month September crude exports at approximately 6.67 million bpd, the highest level in seven months.
The figures cover different measurement periods, which explains the difference between the three-week average and the full-month September estimate.
Saudi export recovery has outpaced the recovery in domestic crude production.
Energy Aspects expects Saudi Arabia to produce approximately 7.4 million bpd in October, equivalent to roughly 75% of its prewar output.
Reduced domestic refining capacity following attacks on processing facilities has allowed more available crude to be directed toward export markets even while overall production remains constrained.
Saudi Aramco CEO Amin Nasser has said the kingdom retains the ability to raise crude production substantially if needed.
Asia remains the most important destination for Gulf crude, making the region central to the current competition for buyers.
Saudi Arabia's share of Asian crude imports fell from approximately 24% in February to a record low of 9% in September as refiners turned to alternative suppliers during the Hormuz disruption.
Reuters calculations based on Kpler data indicated the Saudi share could recover to around 14% in October.
The UAE was less severely affected, with its share of Asian crude imports moving from about 13% in February to approximately 12% in October.
Restoring physical export capacity is only one part of the effort to win back customers.
Gulf producers have also used discounts and spot cargoes to compensate buyers for elevated freight, insurance and security costs.
Iraq has offered substantial discounts to buyers willing to load crude from Gulf terminals, while Saudi Arabia has also increased the availability of spot barrels to Asian refiners.
ALSO READ: Iraq Oil Exports Recover as Discounts Draw Major Buyers
Saudi Aramco has continued adapting its sales strategy as some buyers remain reluctant to charter their own tankers through high-risk Gulf waters.
Reuters reported on October 12 that Asian refiners had purchased at least 12 million barrels of Saudi crude for November delivery through spot transactions.
The cargoes included sales to refiners in China, India and Taiwan.
Saudi Arabia has also continued using alternative loading points including Yanbu and Egypt's Sidi Kerir when market and security conditions allow.
Higher Gulf exports would normally place downward pressure on crude prices.
But transportation remains unusually expensive and unpredictable.
Tankers operating in the region continue to face high insurance premiums, security threats and volatile freight rates, which increase the delivered cost of Gulf crude.
That means refiners and consumers may see less price relief than headline export volumes would normally suggest.
The export rebound still depends on continued access through the Strait of Hormuz and the reliable operation of alternative routes.
Recent tanker attacks show that the waterway remains far from normal, while Saudi Arabia's Red Sea corridor and other bypass routes have faced their own security problems.
A renewed reduction in tanker traffic could therefore quickly reverse some of the recent export gains.
The next phase of the Gulf crude recovery will depend on whether Saudi Arabia, the UAE, Iraq and Kuwait can maintain higher exports without triggering another major disruption in shipping or infrastructure.
Asian refiners will also be important. Producers that offer reliable delivery, competitive pricing and lower logistical risk are likely to recover market share more quickly.
The growing availability of Gulf barrels could continue narrowing the global crude deficit, but high shipping costs and persistent security risks mean the recovery remains fragile.
How much crude is currently moving through the Strait of Hormuz?
Kpler estimated that crude exports through Hormuz averaged about 12 million barrels per day over the two weeks leading up to October 8, roughly 80% of prewar levels.
How much crude is the UAE exporting?
The UAE exported an average of about 3.3 million barrels per day from June through early October, according to Kpler.
How much crude is Saudi Arabia exporting?
Kpler estimated Saudi exports at about 7.3 million barrels per day over a recent three-week period. A separate full-month estimate put September exports at about 6.67 million bpd.
Why are Saudi Arabia and the UAE increasing exports?
The recovery in shipping has allowed both producers to reconnect with customers who turned to alternative suppliers during the conflict. Reuters analysis describes the renewed competition as an effort to regain market share, particularly in Asia.
Does higher Gulf supply mean oil prices will fall sharply?
Not necessarily. Shipping, insurance and security costs remain unusually high, which keeps the delivered cost of crude elevated even as export volumes recover.
Hormuz Tanker Attacks Threaten Gulf Oil Export Recovery
UAE Crude Exports Hit Record High Following OPEC Exit
Saudi Aramco Resumes Oil Loadings Through Hormuz
Iraq Oil Exports Recover as Discounts Draw Major Buyers
Saudi Red Sea Oil Exports Face Rising Houthi Threat
Sources: Egypt Oil & Gas; Reuters; Kpler; Energy Aspects.
Courtesy: www.egyptoil-gas.com
