Oil futures extended declines to a third consecutive session Friday, with market concerns about Saudi Arabia supply disruptions tempered by expectations that some flows could soon be restored through the kingdom's damaged East-West Pipeline.
Brent crude for November delivery fell 0.9%, to $103.87 a barrel, and West Texas Intermediate crude for October settled down 1.6%, at $100.30 a barrel. Brent was down 0.7% on the week and WTI edged up 0.2%.
Saudi Arabia hasn't provided a timeline for restarting the pipeline, which carries crude from its eastern oil fields to the Red Sea port of Yanbu, providing an alternative export route when flows through the Strait of Hormuz are constrained. The Saudi energy ministry said technical teams were assessing the pipeline's integrity and that any new developments would be announced in due course.
"This is the first time since 1973 that we are realizing Saudi Arabia can actually be offline," said Andrejka Bernatova, chief executive of energy-focused special purpose acquisition company Dynamix Corporation III. "I think that's the new risk factor we are seeing in oil prices. We cannot manage without their oil."
Saudi Arabia is trying to resume partial operations on the pipeline within days, though repairing damaged pumping stations and fully restoring capacity could take as long as six to eight weeks, The Wall Street Journal reported, citing people familiar with the matter.
A ship-to-ship shuttle service through the Strait of Hormuz could provide Saudi Arabia with another option for getting crude to buyers. The United Arab Emirates' Adnoc has been using its own and hired vessels to carry crude through the strait in convoys under U.S. military protection, then transferring the oil to other tankers waiting in the Gulf of Oman, the Journal reported.
Still, the security situation around Saudi Arabia and the region's major oil-shipping routes remains volatile. Iran-backed Houthi forces in Yemen have seized territory in recent weeks, including an island in the Bab al-Mandeb Strait, strengthening their ability to interfere with Saudi Red Sea oil shipments.
"The murky status of Saudi Arabia's damaged East-West Pipeline heightens question marks regarding oil exports from the Middle East," said Pavel Molchanov, investment strategy analyst at Raymond James.
On the brighter side for U.S. drivers, "with summer travel season in the rearview mirror, prices at the pump should gradually moderate even if oil prices were to remain near current levels," Molchanov added.
Average U.S. retail prices for regular gasoline rose to $4.47 a gallon Friday from around $4.30 a week ago, the AAA reported, while average diesel prices hit a new all-time high $6.45 a gallon.
Toril Bosoni, head of the International Energy Agency's Oil Industry and Markets Division, said Friday that alternative export routes, higher non-Gulf production and weaker demand have helped cushion the disruption. Flows through the Strait of Hormuz averaged 7.6 million barrels a day in August, 13.1 million barrels a day below prewar levels, while Saudi and U.A.E. bypass routes have offset an average 2.8 million barrels a day of lost Hormuz flows since the conflict began.
Meanwhile, markets are watching for developments in the U.S.-Iran conflict. MUFG said investors are looking toward the next phase of diplomacy, with President Trump expected to meet leaders of Gulf countries next week around the United Nations General Assembly.
Saudi Aramco's extensive domestic supply chain could help speed up repairs to damaged infrastructure. Around 70% of its operational inputs, including pipes, chemicals and wellheads, are sourced locally, according to Rebecca Schulz, a senior oil analyst at the International Energy Agency.