Saudi Arabia races to reroute oil as Gulf storage fills up fast

Saudi Arabia is diverting millions of barrels of its crude oil to a port on its Red Sea coast, helping the world’s top exporter to maintain supply to global markets as the Iran war blocks the Strait of Hormuz shipping chokepoint and fills the region’s storage tanks. Five supertankers already loaded on the western port of Yanbu this month, where exports have risen to three times the average of February, tanker-tracking data compiled by Bloomberg show. Saudi Arabia normally ships the vast majority of its oil from Ras Tanura in the Persian Gulf and, while those loadings have not halted, the war means cargoes are not leaving the region as normal to reach global markets.

The conflict has effectively left Hormuz closed to commercial shipping, choking off a swath of oil, fuel and gas supply and jeopardizing output in the energy-rich region if the situation persists. Huge storage capacity means Saudi Arabia can withstand a blockage longer than any other gulf producer, with the option to divert barrels to the western port of Yanbu giving it an even bigger cushion, according to JPMorgan Chase & Co. Aramco, the kingdom’s energy champion, said on Wednesday it was sending export volumes from its main producing regions in the east via pipeline to ports on the Red Sea.

In theory, the pipeline has capacity to pump most of Saudi Arabia’s roughly 7 million barrels of daily crude exports. Five very-large crude carriers, or VLCCs, departed Yanbu on the Saudi Red Sea coast in the first four days of March, the tanker-tracking data compiled by Bloomberg show. The vessels can load about 10 million barrels between them.

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That brings average daily shipments so far this month to about or 2.5 million barrels compared with 786,000 barrels a day last month, according to the tracking. Several other tankers are now headed toward the Red Sea, having previously been bound for the Persian Gulf. Brent futures are up almost 15% since Friday’s close and this week breached $80 a barrel for the first time in over a year.

European gas soared by even more this week after major exporter Qatar temporarily cut output. With Hormuz effectively blocked, storage tanks are filling up at refineries and oil fields across the Persian Gulf, with the supply of vessels to load cargoes diminishing fast. With Iraq already shutting in production due to full storage tanks, other producers like Kuwait could face a similar reckoning in less than two weeks, warn analysts at JPMorgan. Refineries like Ras Tanura in Saudi Arabia halted operations, Qatar’s main LNG facility declared force majeure as it halted production and exports and Iraq is already shutting in production at its biggest fields.

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