Drone Attack on Saudi Pipeline Sparks Diesel Price Surge
The East-West Pipeline in Saudi Arabia was hit by drones on September 10, causing damage and disruption to crude oil supplies. The attack affected a major pumping facility, and repairs are estimated to take three to five weeks. However, it's reported that the pipeline restarted at a low rate by September 22, with a return to full flow expected six to eight weeks later.
The East-West Pipeline was built in 1981 as a backup route for Saudi crude exports, avoiding the Strait of Hormuz. With Hormuz closed since February, the pipeline has become critical to Gulf oil supplies. The attack on the pipeline highlighted its vulnerability and dependence on a single line of pump stations.
As a result of the disruption, diesel prices have surged, with U.S. distillate inventories running 13% below their five-year seasonal average. Diesel prices have already reached their highest nominal price since tracking began in 1994. The EIA's September Short-Term Energy Outlook forecasted diesel crack spreads above $2 a gallon from August to November.
The car industry relies heavily on diesel, with new vehicles transported by rail cars pulled by diesel locomotives and on car-hauler trucks. Higher diesel prices have increased the cost of road and rail freight for all goods. Automakers bundle transportation costs into destination charges, and parts suppliers fold freight into their bills.