Saudis Give European Oil Buyers No Supplies for Next Month

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This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast with Carol Massar and Tim Stenovec.

Carol Massar (0:32)

Hey, WTI Crude, we've seen it slightly higher today, traded above about 103 a barrel at one point.

Brent Crude has been down for a third day today, at least that was a little while ago, so I think we're still on that trade, but it did go as high as 105 before backing off a little bit. And I've got to say, our most red story in the Bloomberg today, Tim, has to do with what Saudi Aramco is up to.

Tim Stenovec (0:52)

We're going to get to that, but I just want to add one more point in.

Gas prices in the US., $4.47 a gallon right now. Remember, we're just a few weeks away from the midterms. Diesel, $6.45 a gallon. It doesn't matter if you don't have a diesel truck. It matters if you buy things that are transported with diesel.

Carol Massar (1:11)

You know who's? Yeah. I mean, Amazon, you talk to them, they'll talk about their green fleet and so on and so forth, but everybody who's really moving things around in a big way are using diesel, right? And that cost has got to be picked up and paid by someone. All right, so let's get to what we mentioned.

Tim laying out the prices in really good perspective. Saudi Aramco, though, telling at least two oil-refining customers over in Europe that they will be allocated no crude next month under long-term agreements after the kingdom's key pipeline to the Red Sea was attacked. This is according to people informed of that decision specifically.

Tim Stenovec (1:45)

For more, I want to go to Jacksonville, Florida, to Bloomberg Intelligence Senior Energy Analyst Rob Barnett. Rob, good to have you with us. Brent, holding steady, as Carol mentioned, amid shifting concerns in Middle East supply. Saudi Arabia pausing some sales to Europe. Was this Saudi move expected?

Rob Barnett (2:02)

Well, Saudi Arabia has moved from being an anchor supplier in the global oil market to one that is struggling to connect with its customers. I don't think it's that surprising given all of the turmoil in the region. But you gotta think, previously, they've been using this East-West pipeline. That's been a major workaround for the country.

With the Strait of Hormuz being fully closed or slightly open depending on the day, this pipeline was the key thing that allowed the country to continue to get its supplies to market and the Houthis have really complicated that logistical workaround for the country. So on paper, Saudi Arabia is capable of producing, let's call it 12 million barrels per day of oil. And today, it's producing closer to seven, maybe even a little less based on the latest monthly data. So Saudi Arabia is normally producing a lot more oil output and with it producing so much less, that's the reason that the prices at the pump you were talking about earlier are so high right now.

Carol Massar (3:19)

So wait, so what's our takeaway from this, Rob? Is it a short-term blip? Is it something longer that we have to be concerned about and what it means for global oil prices?

Rob Barnett (3:30)

Well, everything relates to the conflict. And so in some sense, you've got to put on your thinking cap and think through how the conflict between the US and Iran resolves or if it resolves and what the timeline for that looks like.

Until we get some kind of more stable geopolitical regime sitting over the region, Saudi Arabia's pipelines, oil fields could be in range of Iranian missiles and not just Saudi Arabia, it's every country in the region. This is an important part of the world for the oil market. And so I think everything comes down to what's your thesis or theory on how the conflict either resolves or doesn't.

Tim Stenovec (4:20)

Well, Rob, let's just end by bringing it home here to the US. I mentioned some of the AAA averages that we're seeing around the country. Where you live, it certainly varies. 447 a gallon here in the US, daily national average 645 a gallon now for diesel. How high does this go?

Rob Barnett (4:39)

Well, it's really interesting because there is a disconnect between the crude market and the product markets. In a normal time, if you had diesel at over $6 a gallon, that tends to indicate crude closer to maybe 180 a barrel instead of the low 100s we're seeing right now.