The Kingdom will meet obligations to suppliers by running down reserves as Saudi Aramco works toward bringing back all the 5.7 million barrels a day lost after the giant Abqaiq processing plan was attacked.
Monday 16, September 2019
Saudi Arabia will probably restore almost half the oil production lost after this weekend’s devastating drone strike as early as tomorrow, though a full resumption from the world’s biggest crude exporter may take weeks, reported Bloomberg.
Although supply into the global market will not be disrupted in the short term, prices are likely to jump when they open for the week as traders digest the attack.
Before the attack, Saudi Arabia was pumping about 9.8 million barrels a day, almost 10 per cent of global production. Saudi Aramco is expected to declare itself unable to fulfil contracts on some international shipments—know as force majeure—if the resumption of full capacity at Abqaiq takes weeks.
Saudi oil facilities, as well as foreign tankers in and around the Persian Gulf, have been the target of several attacks over the past year. The escalation coincided with President Donald Trump’s decision to pull the US out of the 2015 nuclear agreement with Iran and re-imposed crippling economic sanctions against the Islamic Republic.
Saudi Aramco will be able to keep customers supplied for several weeks by drawing on a global storage network. The Saudis hold millions of barrels in tanks in the Kingdom itself, plus three strategic locations around the world, that is Rotterdam in the Netherlands, Okinawa in Japan and Sidi Kerir on the Mediterranean coast of Egypt.
Instead of supplying some customers with the usual crude oil grades of Arab Light or Arab Extra Light, the company may offer them Arab Heavy and Arab Medium as a replacement.
The US government said it’s prepared to dip into the Strategic Petroleum Reserve if necessary to offset any market disruption. The International Energy Agency, which helps coordinate industrialised countries’ emergency fuel stockpiles, said it was monitoring the situation.
The key question for governments, oil traders and the Organisation of Petroleum Exporting Countries, in which Saudi Arabia is the largest producer, is how long the disruption lasts.