In this report: Petroline exposure, China's crude cutoff, IEA stock mechanics, COT positioning, and this week's trade falsifiers
Last week. Brent 8.84% (+$8.47) Open $97.05 High $109.97 Low $95.97 Close $104.32
Apologies for been late, but there is a lot to cover.
Articles
Current MEG flows- The Oil report
Weekly EIA inventory report- The Oil Report.
Iran war live: Hormuz talks postponed and oil prices jump, as Houthi attacks on Saudi Arabia continue
Yemen’s Houthis reach strategic island at mouth of vital shipping lane
Trump declines Saudi crown prince’s call for US strikes on Houthis, Axios reports
How Saudi Arabia Moves Oil Without the Strait of Hormuz: The Petroline East-West Pipeline
Saudi oil output plunges to lowest since 1990 amid fallout from US-Iran war
Global AI stocks fall as industry chiefs call for slowing development
Fed’s table is set for a rate hike, a first under Warsh
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“The Kingdom has chosen not to retaliate at this stage and to support the efforts of the Iraqi government” to allow Iraq to take measures to prevent attacks from its territory - Saudi Foreign Ministry, in response to targeting of East-West Pipeline,
Welcome to the third phase of the war- with long tails that will echo through the financial system for all of 2027 and well beyond. Let’s not pretend that there is a way to print our way out of this Trump/Netanyahu hole. They wanted a war, they got it and we wear it!
There is a sister report to this one, MEG region flows. There is simply too much to cover at this time to have in one article. The situation requires contextual and situational awareness that spans more than just one compact article. So please have a read. In short, we have about a 2mbd-5mbd outage from the system right now. We will wait to see how Saudi repairs deliver over this week. In my opinion, there are extreme shortcomings that will leave this bypass route exposed. Even if Saudi get the Petroline back to where it was, a doubling of major security assets will have to be made on this pipeline, simultaneous to a doubling of security around Yanbu and Jazan refinery.
Trump has already turned down any military intervention to help Saudi. I see this situation actually suiting American strategy, effectively attempting to solidify regional ideas about reliance on US protection. Though that reliance should now be questioned, given that exact protection failed to deliver anything over the last 7 months, unless you were Israel.
The Red Sea
Ansar Allah (The Houthis) stepped up maximum pressure in the Red Sea and across the West of the Arabian coastline, capturing several islands and ports inside the Bab al Mandeb strait. This effectively secures their complete dominance of the southern access to The Red Sea. The direct effects of this strategically strengthen Iran’s position even further across two of the three most important regional shipping routes. This is now forcing MEG region Asian exports into a 54-day transit time. A ship leaving Yanbu last week will arrive in South Korean on November 7th approximately.
More commonly referred to as the East-West pipeline, The Petroline has provided key relief to the situation in the Straits of Hormuz. Briefly, this line carries up to 7mbd of Saudi crude to the Red Sea port of Yanbu. In turn, Yanbu can load about 4mbd, however of recent weeks, this actual loadings have dropped to approx 2mbd in August. As The Houthis continue to assert domain dominance in the Red Sea, I could see this easily move to as low as 500kbpd or zero. There will be severe limitations to how Saudi can protect itself.
Everything East is bid!
Chinese refiners are tuned to process the middle eastern grades of crude. Saudi Arab Light, Arab Heavy, Basrah Medium, and Upper Zakum. These are all effectively cut off from China. So if we look at the greater strategic goals of The US, a war to win is not really the target. The war to disrupt Chinese imports is the goal. Force China to eat into national SPR reserves and clip their energy security wings. That’s the real game. From this chart below, guess which grade of oil China buys? Yes, the Oman one.