WTI slipped on Wednesday after Saudi Arabia moved to restore throughput on its East-West pipeline following last week\u2019s drone strike, easing immediate supply fears. The US benchmark traded near $97.90 a barrel, down almost 3% on the day, after failing to hold above $100. Saudi Aramco is working around the damaged section and is seeking to return about half the line\u2019s capacity within days, while full operations are targeted in roughly six weeks; crude shipments to Asian refiners have also been increased via ship-to-ship transfers near Sohar, Oman.<\/p>\n
The 1,200-kilometre East-West route runs to Yanbu on the Red Sea and can carry up to 7 million barrels per day, offering an option to avoid the Strait of Hormuz, where traffic has been curtailed since the Iran war began. Preliminary Reuters shipping data showed four vessels transited Hormuz on Tuesday, down from seven on Monday, and below the 10-day average of 18. Separately, the EIA said US commercial crude stocks fell by 640,000 barrels in the week to 11 September, following a 391,000-barrel drop a week earlier, but short of expectations for a 1.6 million-barrel draw.<\/p>\n
We recommend that derivative traders prepare for short-term downward pressure on WTI crude as Saudi Arabia quickly restores its East-West pipeline capacity. With prices slipping below the crucial $100 mark to around $97.90, short-term put options could help capitalize on this temporary relief in supply tension. However, we must remain nimble as the market digests the speed of Saudi Aramco\u2019s bypass operations.<\/p>\n
Despite the pipeline recovery, the wider geopolitical threat keeps a high floor under oil prices due to the ongoing conflict near the Strait of Hormuz. Recent shipping data shows daily vessel transits through this critical choke point have plummeted from a ten-day average of 18 down to just four. Because the strait typically carries about 20% of the world’s petroleum liquids, we suggest holding longer-dated call options to hedge against sudden, severe supply shocks.<\/p>\n
Our bearish short-term outlook is further supported by the latest domestic inventory numbers from the US Energy Information Administration. The EIA reported a commercial crude inventory decline of only 640,000 barrels, missing the market’s expectation of a 1.6 million-barrel draw. We advise traders to watch the upcoming American Petroleum Institute reports on Tuesdays to gauge if this trend of weaker-than-expected demand continuation persists.<\/p>\n\n\n\n