Saudi Pipeline Restart Fails to End Oil Market Tightness
Saudi Arabia has resumed limited flows on its 7 million barrels-per-day East-West pipeline after an 11-day outage, but global oil market tightness persists as freight and diesel prices surge. Very large crude carrier (VLCC) rates have spiked to unprecedented levels, straining tanker availability and raising the cost of delivering crude to Asia.
Why It Matters
The jump in shipping costs and rising diesel prices undercut the supply relief from Saudi pipeline restarts, indicating structural constraints that could keep margins and consumer fuel prices elevated despite resumed Saudi flows. Freight-driven delivery costs are now a material component of crude economics for Asian refiners.
Key Facts
- Pipeline restart: Saudi Aramco restarted the East-West pipeline at a low rate after an 11-day shutdown; full pre-attack flows (~4 million b/d to Yanbu) may take six to eight weeks to restore.
- VLCC earnings: Daily earnings on a Gulf-to-China VLCC route rose to about $1.2 million this week.
- Charter deals: TotalEnergies fixed the tanker Kuwait Prosperity last week at roughly $75 million; similar offers this week approached $100 million.
- Freight share of cost: Bloomberg estimates freight now accounts for at least 25% of the delivered cost of crude to Asia, up from 5-6% in 2025.
- Ship switching: Asian refiners have been shifting to smaller vessels — Chinese buyers moved from VLCCs to 1-million-barrel Suezmaxes for some Brazilian crude cargoes.
Saudi Aramco has brought some flow back to its 7 million barrels-per-day East-West pipeline after an 11-day outage, restarting pumping at a reduced rate. The restart offers limited relief to markets worried about supply displacement of the Strait of Hormuz, but industry observers warn that it could be six to eight weeks before exports through Yanbu return to pre-attack volumes of roughly 4 million barrels per day as repair work continues. Even with pipeline volumes coming back, the oil market remains tightly supplied because shipping capacity and fuel-product prices are under severe strain. Very large crude carrier (VLCC) freight rates have climbed to extraordinary levels, with daily earnings on Gulf-to-China routes reaching about $1.2 million in the latest week. Outsize chartering fees have followed: TotalEnergies reportedly booked the Kuwait Prosperity tanker last week for about $75 million, and comparable offers this week were quoted nearer $100 million. The surge in freight costs is reshaping crude logistics and economics. Bloomberg calculates that freight now makes up at least a quarter of the delivered cost of crude to Asia, up sharply from around 5–6% in 2025, squeezing potential refinery margins. Some Asian buyers are responding by shifting to smaller, shorter-haul ships — for example, Chinese refiners importing Brazilian crude have swapped planned VLCC cargoes for 1-million-barrel Suezmax loadings — but that only partially offsets the global shortage of long-haul tankers caused by vessels staying in the Gulf region. Beyond shipping, product markets show signs of stress that could sustain tightness even as Saudi pipeline flows recover. Diesel prices have been rising persistently, and other supply disruptions — including refinery outages and broader geopolitical friction around the US-Iran conflict — continue to weigh on markets. Together, elevated freight, product-price pressure and remaining pipeline repair timelines suggest the apparent supply relief from resumed Saudi pumping may not be sufficient to quickly ease global tightness.