How Saudi crude output outage affects global crude oil prices?

Baku, Azerbaijan, Sept.24

By Leman Zeynalova – Trend:

On September 16, the first full day of trading after the attack on Saudi Arabia’s oil facilities, Brent and West Texas Intermediate (WTI) crude oil prices experienced the largest single-day price increase in the past decade, Trend reports citing the US Energy Information Administration (EIA) analysis.

On September 14, 2019, an attack damaged the Saudi Aramco Abqaiq oil processing facility and the Khurais oil field in eastern Saudi Arabia. The Abqaiq oil processing facility is the world’s largest crude oil processing and stabilization plant, with a capacity of 7 million barrels per day (b/d) or about 7 percent of global crude oil production capacity.

On September 17, Saudi Aramco reported that Abqaiq was producing 2 million b/d, and they expected its entire output capacity to be fully restored by the end of September. In addition, Saudi Aramco stated that crude oil exports to customers will continue by drawing on existing inventories and offering additional crude oil production from other fields.

Tanker loading estimates from third-party data sources indicate that loadings at two Saudi Arabian export facilities were restored to the pre-attack levels. Likely driven by news of the expected return of the lost production capacity, both Brent and WTI crude oil prices fell on Tuesday, September 17.

EIA estimates that Saudi Arabia was producing 9.9 million b/d of crude oil in August. Estimates from the Joint Organizations Data Initiative (JODI) indicate the country exported 6.9 million b/d during July, the latest month for which data are available. Estimates from a third-party tanker tracking data service, ClipperData, indicate Saudi Arabian crude oil exports in August remained at 6.7 million b/d. Saudi Arabia’s crude oil production and export levels are each 0.5 million b/d lower than their respective 2018 annual averages.

Although U.S. imports of crude oil from Saudi Arabia have declined during the past three years—and recently hit a four-week average record low of 380,000 b/d in the week ending September 6—the United States still imports about 7 million b/d of crude oil. As a result, a tighter global crude oil market and increased global crude oil prices will ultimately increase the price of crude oil and transportation fuels in the United States.

Global inventories of crude oil are the most readily available alternative source of supply during a supply outage. JODI data indicate that Saudi Arabia held nearly 180 million barrels of crude oil in inventory at the end of July 2019. Saudi Arabia can use these inventories to maintain a similar level of crude oil exports as before the attack, assuming the production outage doesn’t last long, which Saudi Aramco indicated in its update on September 17.

Robin Mills, the CEO of Qamar Energy in Dubai, told Trend that the recent attacks on the Saudi oil processing plant, if Saudi supplies are significantly reduced, would tighten the market.

“The oil market is looking oversupplied next year, particularly if demand continues to slow down. This would require OPEC+ to continue their cuts, or even increase them, but increasing cuts would be very difficult to agree between the members. However, the recent attacks on the Saudi oil processing plant, if Saudi supplies are significantly reduced, would tighten the market; although then other OPEC+ members would likely reduce their compliance,” he said.

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Follow the author on Twitter: @Lyaman_Zeyn

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