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 was down 0.5% at $104.28 a barrel, while West Texas Intermediate crude for October was off 0.3% at $101.61.
Prices pared earlier losses after Bloomberg reported that Saudi Arabia had told at least two European customers that they wouldn't receive crude deliveries next month.
"That along with news that an oil tanker in the Strait of Hormuz was hit late yesterday--minimal damage was noted--has slowed the last two days' sell-off in crude futures," Dennis Kissler, senior vice president of trading at BOK Financial, said in a note.
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 Wall Street 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 developments add to risks around Saudi Arabia's Red Sea export route as the kingdom works to restore the East-West Pipeline.
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.