Middle East Disruptions Push Crude Prices Past $100 as US Exports Hit Bottleneck

Crude oil prices have surged past $100 per barrel after fresh supply disruptions in the Middle East. The Houthi tribe advanced along Yemen's Red Sea coast and launched drone attacks that damaged Saudi Arabia's East-West Pipeline, which has been a key workaround for crude exports after Iran closed most traffic through the Strait of Hormuz.

The pipeline normally moves 4-5 million barrels per day (MMb/d) but has been shut down entirely. Full repairs are likely to take four to six weeks to complete. The disruption to the East-West line means both major release valves in the Persian Gulf are constrained, with the Strait of Hormuz currently carrying around 4.9 MMb/d.

The US oil industry typically steps up to respond to higher prices by ramping drilling and moving more barrels to export docks. However, infrastructure constraints are likely to limit this upside. Pipelines are the primary bottleneck, with Permian-to-Gulf Coast crude pipes already operating at around 95% utilization towards Corpus Christi and 90% towards Houston and Nederland.

The East Daley Analytics' Crude Hub Model estimates that there is only about 500 Mb/d of combined spare capacity on Houston- and Corpus Christi-bound Permian oil pipes. Export docks in Corpus Christi and Houston appear to have more leeway, running at 47% and 33% utilization, respectively.

Without the temporary fillip from the Strategic Petroleum Reserve (SPR), US crude oil exports have reverted back to around 4 MMb/d, which was the level before the Middle East conflict. The industry can respond, but it will take time to expand infrastructure to meet the prevailing global supply gap of around 5-6 MMb/d.