Oil prices may soar to $150/b with Aramco attacks
Baku, Azerbaijan, Sept.16
By Leman Zeynalova – Trend:
The UK-based Capital Economic research and consulting company has three possible scenarios related to the attack on Saudi Arabia’s oil facilities, Trend reports.
“The attacks on Aramco facilities have reportedly removed about 5.7m bpd of Saudi output (6 percent of global supply). But global crude stocks should be able to cushion against supply shortages in the near term. We estimate that inventories amount to 6.1bn barrels , or 61 days of global demand. The International Energy Agency and President Trump have both said they are on standby to release strategic reserves, if required. And Saudi Arabia has pledged to maintain its exports by drawing down reserves,” reads a report released by Capital Economics.
In the company’s first scenario, which is the most likely, Capital Economics assumes that Saudi Aramco restores output fully in the next week or so and that there is minimal disruption to global oil supply.
“The rapid resumption of “business as usual” will reassure the oil market that Aramco is able to cope with militant attacks. We would expect oil prices to drop quite quickly to around $60 per barrel (our current end-2019 forecast) and would not expect much of a permanently higher risk premium in the price,” said the company.
The second scenario assumes that it takes months to restore Saudi output.
“At the same time, tensions would remain high and there could be further attacks. Stocks would have to be drawn down more quickly and there would be valid concerns about supply shortages. Prices would rise further, to around $85 per barrel, as the market struggled to fill the void left by the outage in Saudi Arabia.
What’s more, we think prices would stay at around $85 for several years owing to a higher risk premium, amid ongoing tensions,” said the UK-based company.
In the final scenario, tensions would escalate and there would be outright military conflict in the Middle East.
“Prices would inevitably soar, potentially to over $150 per barrel by end-2019. That said, disruption to Middle East supplies and extremely high prices would encourage production elsewhere, particularly in the US. US shale producers are currently struggling with cash-flow problems and have not been investing. But this would all change if prices skyrocketed. At the same time, demand would be curbed by the high price. In earlier instances of geopolitics-driven price surges, prices subsequently fell back quite quickly. (In this scenario, prices could decline sharply over the course of 2020,” said the company.
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