Saudi Aramco told every European term customer on Friday 18 September that they will receive no Saudi crude at all in October, and rerouted roughly 60 million barrels through its Gulf terminal at Ras Tanura and ship-to-ship transfers off Sohar, Oman, to buyers in China, South Korea, India and Japan1. Those are the barrels European refiners had already planned their October runs around. The East-West Pipeline, the Aramco line also known as Petroline, normally carries them to the Red Sea and is still down after the drone strike that shut it on 10 September. Europe's replacement cargoes must now clear Hormuz, clear the Red Sea, or sail five weeks around Africa.
The price of that reallocation shows up in one number that looks like a typing error until the mechanism is attached. Dated Brent, the benchmark for physical European cargoes, reached $130.80 on Tuesday 15 September2, yet Brent futures on the Intercontinental Exchange (ICE) settled at $103.87 on Friday 18 September3, a gap of roughly $26 per barrel. A Rotterdam refiner pays the first number and hedges against the second. Its hedge no longer covers its cost. Physical and paper normally trade within a couple of dollars of each other: the spread was minus $1.83 on 26 June, and the physical premium had already collapsed to near parity in May.
The gap widened inside this window; it did not open in it. It already stood at $13.45 on Wednesday 9 September. We reported a $14.20 physical premium on Thursday 19 March as the widest on record, yet the present gap is roughly double that mark. ORLEN is already buying North Sea, US and Kazakh crude in place of Saudi barrels4. The cost does not stay in Rotterdam: that substitution tightens the North Sea and Kazakh pools in turn, and reaches every other Atlantic buyer bidding for the same cargoes.
US pump prices show the same market from the other side. Retail petrol averaged $4.455 per gallon in the week of 14 September on the Energy Information Administration's all-grades series5, a third consecutive weekly rise that has added about 25 cents in a fortnight, or roughly $4 on a full tank. That series tracks West Texas Intermediate (WTI) and domestic refining margins rather than Dated Brent, and WTI futures moved only from $100.05 to $100.30 across the week6. The extreme number belongs to Europe, not to the American motorist. US Energy Secretary Chris Wright said on Tuesday 15 September that the East-West line "should be flowing within days"; by Friday, people familiar with Aramco's plan put half capacity within days and full capacity six weeks out7. Aramco's Yanbu loadings had already tilted 62% towards Asia in July.
