Attacks on Saudi oil facilities may reduce investor appetite for Aramco shares
Baku, Azerbaijan, Sept.17
By Leman Zeynalova – Trend:
Preparations for the sale of Saudi Aramco have been ramped up over the past month or so, but the latest attacks on Saudi oil facilities may end up denting investor appetite for Aramco shares and, as a result, weigh on the valuation of the firm, Trend reports citing UK-based Capital Economics research and consulting company.
The sale could end up being delayed (again), the company believes.
Capital Economics experts believe that first, the impact on energy markets will depend on the length (and extent) of disruption to Saudi oil production.
“The most likely scenario is that output is brought back online in a matter of days. After all, at least part of the suspension to output is precautionary. And Aramco has prepared extensively for such attacks. In the meantime, the Kingdom can draw down its own crude stocks in order to offset any loss of output. Major oil consumers can also release supplies from their own strategic reserves. In this scenario, we would expect Brent crude to probably drop back quickly to our year-end forecast of $60pb,” said the company.
But, according to the UK-based company, there is clearly a risk that it takes much longer to restore the facility to full capacity and the market struggles to fill the void.
“In addition, heightened geopolitical tensions mean that Saudi oil facilities will remain vulnerable to attack. In this event, we think oil prices would rise to around $85pb. Second, the Saudi economy is likely to weaken no matter how long the disruption lasts. Admittedly, if production comes back quickly, the direct hit to the economy will be minimal. But we would still expect growth to slow over the rest of this year as the drag from OPEC-agreed oil output cuts intensifies and fiscal policy tightens. (See here.) Our 2019 GDP growth forecast of 0.3 percent lies below the consensus,” reads the analysis.
A prolonged disruption to Saudi oil production would hit the economy much harder, according to Capital Economics.
“In a worst-case scenario, if the 5.7mn bpd reduction in output lasted until the end of this year, we estimate that this would reduce GDP by more than 20 percent y/y in Q4. The actual decline could be even deeper given that there would also be knock-on disruption to petrochemicals production, which accounts for around 3 percent of GDP.”
Saudi Arabia’s stock market fell by 2.3 percent at Sunday’s open as the country grappled with weekend drone attacks on the heart of its oil production facilities in Abqaiq and Khurais claimed by Yemen’s Houthi rebels.
Reports that the country may take weeks to return to full oil supply capacity, depending on the scale of the damage.
Abqaiq, in the kingdom’s eastern province, is the world’s largest oil processing facility and crude oil stabilization plant with a processing capacity of more than 7 million barrels per day (bpd). Khurais is the second largest oil field in the country with a capacity to pump around 1.5 million bpd.
Follow the author on Twitter: @Lyaman_Zeyn