Hormuz Disruption Sends Oil Prices Soaring Above $130

The recent disruption in the Strait of Hormuz has sent shockwaves through the global oil market. Saudi Arabia, one of the world's largest oil producers, has suspended its East-West pipeline, which carries oil from its eastern fields to Yanbu on the Red Sea. The pipeline had a capacity of around 7 million barrels per day and was carrying approximately 4-5 million barrels daily.

The immediate impact is being felt in physical markets, with some European crude cargoes trading above $130 per barrel, significantly higher than the front-month futures price. This price gap highlights the challenges in getting the right barrels to the right refinery.

While Saudi Arabia can redirect some exports through alternative routes, these options are more complicated and carry greater shipping risks. The country's Yanbu stocks can only cover a limited period, and repairs to the damaged pipeline may take weeks depending on the extent of the damage.