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Tuesday, 28 July 2020

Oil demand slump hits Egypt’s Sumed pipeline

Egypt’s Sumed oil pipeline is feeling the effects of the global demand slump: Egypt’s Sumed pipeline has recently been operating at only a quarter of its capacity due to a historic slump in global demand for oil and the subsequent production cuts that were introduced in May, data compiled by Bloomberg shows. Flows through the pipeline, which is designed to transport up to 2.5 mn barrels of crude per day to the Mediterranean from the Red Sea, have slowed as European countries saw consumption drop by as much as 90%, prompting oil producers to cut output by 10%. As a result, crude flows into Sumed fell almost 50% to 700k bbl/d in June and July from nearly 1.3 mn in April.

Signs of recovery in July: Lifting from the pipeline reached a nadir in June, but since then there has been a slight recovery as a pick up in demand from European refineries draws more crude. Despite this, flows entering the pipeline have failed to rebound, hurt most of all by Saudi Arabia’s continued production cuts. Opec+ is due to start easing the cuts in August, but as most of the new supply is expected to be used domestically, Sumed and other pipelines around the world may have to wait longer before flows pick up.

Why Sumed? Giant crude tankers carrying shipments that mostly come from Saudi Arabia are too big to navigate through the Suez Canal fully loaded to reach their destinations in Europe and North America. Offloading some of their cargo into one end of the pipeline in Ain Sokhna allows the carriers to cross the Suez Canal (without sitting too deep in the water) and then refill in Sidi Kerir. They can also fully offload their cargo to westbound tankers stationed on the other side and move to their next consignment.

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