Saudi pipeline back to 3.5 million barrels a day and Brent gives up its spike; November oil still costs $7 more than December

Oil gave back most of Monday's jump after reports that Saudi Arabia has restored flows on its East-West pipeline to about 3.5 million barrels a day and resumed export loadings at the Red Sea port of Yanbu, CNBC reported, citing people familiar with the matter who spoke to Bloomberg News and The Wall Street Journal. The line can carry up to 7 million barrels a day. Riyadh shut it earlier this month after a drone strike launched from Iraq.

November Brent crude traded at $105.00 a barrel at 2:46 p.m. ET, up 0.7% on the day but down from a session high of $108.81, according to Yahoo Finance futures data. November West Texas Intermediate was at $92.33, slightly lower on the day after touching $96.54.

Why this is the headline that matters

The East-West pipeline is how Saudi crude reaches tankers without passing through the Strait of Hormuz. Last week we said the thing to watch was whether loadings at Yanbu actually resumed. According to the reports Seeking Alpha and CNBC summarised, they have. At half its capacity, though, the bypass is working but is not yet running flat out.

The diplomacy did not change much. Trump confirmed he had rejected Iran's latest proposal to reopen Hormuz, CNBC reported, while a White House official told CNN the president is open to sanctions relief if there is concrete progress toward a nuclear deal.

The number behind the number: a $7 gap between two months

Most headlines quote the November Brent contract. The months behind it tell a different story. At the same moment on Monday afternoon, Yahoo Finance data showed:

That is $7.24 between November and December alone. A curve this steep means buyers are paying a heavy premium for oil they can get now, and pricing easier supply only a few weeks out. When you read that "Brent is above $105," the barrel that most refiners are buying for winter is closer to $98.

The U.S. cushion has almost stopped paying out

The other buffer this year has been the Strategic Petroleum Reserve. The Energy Information Administration's weekly SPR series shows how much that has faded:

• The reserve held 415.4 million barrels on March 20 and 284.6 million on September 18, a drop of 130.9 million barrels.
• At its peak, in the week to May 15, it fell 9.9 million barrels in a single week.
• In each of the two latest reported weeks, it fell about 0.4 million barrels.
• 284.6 million is the lowest weekly reading since October 1982, when it stood at 284.3 million.

For scale: 3.5 million barrels a day through the Saudi pipeline is about 24.5 million barrels a week, roughly 60 times what the SPR released in each of its last two reported weeks. The American stockpile did the heavy lifting in the spring. The Saudi bypass is doing it now, which is why a drone or a missile aimed at Yanbu moves the price so much. We looked at why the reserve fell so far in this earlier piece.

Who feels it

Not much changes at the pump this week. Heating oil futures, the closest market proxy for wholesale diesel, were at $4.50 a gallon, up 0.8% on the day, so the pipeline news did not bring distillate prices down. Fleets, farms at harvest and anyone heating a building with oil should read Monday as a lower risk of a new spike, not a price cut. Our Main Street pieces on heating oil and the diesel export debate work through those costs.

What traders are watching: whether Saudi flows climb toward the 7 million barrel capacity, Wednesday's EIA inventory report for the next SPR reading, and any movement in the U.S.-Iran talks. Follow the price on our crude oil chart and the markets board.

Sources: CNBC (citing Bloomberg News and The Wall Street Journal); Seeking Alpha; Yahoo Finance futures data; U.S. Energy Information Administration. Oil prices move quickly. This is market information, not investment advice.