The Minister and CEO assured customers Aramco’s crude exports will not be reduced this month because it will reduce strategic stocks. The kingdom also temporarily reduced the rate at which domestic refineries process oil by about 1 million barrels a day, making it more crude available for overseas shipments.
Crude prices fell after Tuesday’s long-awaited statement from the kingdom – which pumped nearly 10% of the world’s oil before the important Abqaiq facility was hit by rockets or drones over the weekend. However, it also became clear that Saudi Arabia’s industry will remain weak for months as it depletes its oil reserves to meet supply commitments and operates without its usual spare capacity production buffer.
UBS Group AG analyst Giovanni Staunovo in a note on Wednesday said that “Given the limited reserve capacity outside Saudi Arabia and the risks of renewed attacks on Saudi energy infrastructure, a risk premise is likely to lie in oil prices in Saudi Arabia. the foreseeable future. ”
Although Aramco fixes the damage in Abqaiq, the likelihood of further escalation of the military conflict depends on the oil market. US Secretary of State Michael Pompeo traveled to Saudi Arabia on Tuesday for talks. Later on Wednesday, the Saudi Ministry of Defense will show evidence of Iran’s involvement in the attacks, according to state television.
Saudi Arabia assured customers in distress that crude exports would continue to flow as normal and its industry could recover quickly from the worst attack in its history.
He said Abqaiq is now processing about 2 million barrels per day crude, Aramco Chief Executive Officer Amin Nasser told a conference in Jeddah on Tuesday. The facility should return to pre-attack levels of about 4.9 million barrels by the end of September.
“For the past two days, we have managed to sustain the damage by recovering more than half of the production we had lost during this terrorist attack,” Energy Minister Prince Abdulaziz bin Salman said at a conference in Jeddah. “The company will be able to fulfill all of its commitments to customers this month by withdrawing its crude oil reserves.”
It was a relief to a market that was engulfed by uncertainty – seeing a record price rise at Brent crude on Monday – but progress has been slower than initially expected. Immediately after the weekend attack, officials indicated that most production would be reset within days, with weeks required to restore full capacity. The outlook became more pessimistic in the following days after photos were published showing the extent of damage to the decisive object.
However, figures provided by the energy minister suggest that the kingdom will take months to fully recover from the incident. Full production capacity of 12 million barrels per day will be available only at the end of November, with about 11 million restored by the end of this month, Prince Abdulaziz said. Saudi Arabia aims to pump 9.8 million barrels a day in October, he said, in line with recent months.
Brent crude declined 6.5% on Tuesday after kingdom insurance, but that only partially wiped out Monday’s 15% increase, which was the largest since the contract began trading in 1988. Futures rose 0.4% to $ 64.80 a barrel as of 8:12 am London Mercury.
This historic prize gain underscored the unprecedented nature of the disruption caused by the attack. For decades, Saudi Arabia has been an excellent stabilizer of the oil market, holding a large backing of reserve production capacity that could be introduced in emergencies, such as during the 2011 war in Libya.
The suspension of 5.7 million barrels a day of Saudi production from the attack – the worst unexpected loss in the history of the global oil market – exposed the scarcity of the rest of the world’s buffer supply. Beyond the kingdom, other participants in OPEC + cuts, such as Russia, Kazakhstan and the United Arab Emirates, could restore several hundred thousand barrels a day of idle production, but that is not enough to offset Saudi losses.
Nasser said Aramco increased offshore fields to the maximum to replace lost production. Customers were also being supplied using stocks, though some shoppers are required to accept varying degrees of crude, a person familiar with the matter said earlier this week.
Tehran and Riyadh are historic enemies that support opposing sides in Yemen’s long civil war. The volatile situation in the region finally escalated earlier this year after the US President. Donald Trump used sanctions to try to eradicate all of Iran’s oil exports – the lifeblood of his economy – after unilaterally withdrawing from an international nuclear deal.
For all the practical adjustments to damaged infrastructure under development, Saudi Arabia’s failure to prevent attacks and the risk of further military escalation in the region will depend on the oil market for a long time.
“We cannot rule out the possibility of similar attacks on key Saudi energy infrastructure in the future,” UBS’s Staunovo said. The bank raised its three-month trading range for Brent oil by $ 6 to $ 59 to $ 71 a barrel./Investing.com