National Post (National Edition)
Saudis keep oil flowing as they patch up damage
FUTURES SLIDE 2.1%
DUBAI • Saudi Arabia reassured anxious customers that crude exports will keep flowing as normal and its industry can recover quickly from the worst attack in its history.
Futures dropped 2.1 per cent on Wednesday in New York, extending the previous day’s declines after Saudi Arabia said it would quickly restore full production following last weekend’s attacks on its facilities and as U.S. crude stockpiles rose unexpectedly.
West Texas Intermediate crude for October delivery dropped US$1.23 to settle at US$58.11 a barrel. Brent for November settlement slid 95 cents to end the session at US$63.60 a barrel.
Meanwhile, International Energy Agency executive director Fatih Birol said the oil market remains well-supplied with ample stockpiles, despite the weekend attacks.
Yet it also became clear that Saudi Arabia’s industry — which pumped almost 10 per cent of the world’s oil before the crucial Abqaiq facility was struck — will remain weakened for months as it depletes oil reserves to meet supply commitments and operates without its usual buffer of spare production capacity.
“Considering li mited spare capacity outside Saudi Arabia and risks of renewed attacks on Saudi energy infrastructure, a risk premium is likely to stay on oil prices in the foreseeable future,” UBS Group AG analyst Giovanni Staunovo said in a note on Wednesday.
Even as Aramco fixes the damage at Abqaiq, the possibility of further escalation of military conflict hangs over the oil market. Saudi Arabia’s Defence Ministry on Wednesday said the attacks were “unquestionably sponsored by Iran,” but stopped short of saying the strikes were launched directly from or by the Islamic Republic.
Abqaiq is now processing about 2 million barrels a day of crude, Aramco CEO Amin Nasser said at a briefing in Jeddah on Tuesday. The facility should return to pre-attack levels of about 4.9 million barrels by the end of September, he said.
“During the two past days, we managed to contain the damage by recovering more than half of the production that we had lost during that terrorist attack,” Energy Minister Prince Abdulaziz bin Salman said at a briefing in Jeddah. “The company will be able to meet all its commitments to customers this month by drawing on its crude oil reserves.”
That was relief for a market that has been wracked by uncertainty — seeing a record price surge in Brent crude on Monday — but progress has been slower than was initially expected. Soon after the weekend attack, officials indicated that the majority of output would be restored within days, with weeks required to get back to full capacity. The outlook became more pessimistic in subsequent days as photos were released showing the scale of the damage at the crucial facility.
The minister and CEO assured customers Aramco’s crude exports won’t be reduced this month because it will draw down strategic reserves. The kingdom also temporarily reduced the rate at which domestic refineries process oil by about 1 million barrels a day, making more crude available for shipment overseas.
Still, figures provided by the energy minister suggested the kingdom will take months to fully recover from the incident. Full output capacity of 12 million barrels a day will only be available at the end of November, with about 11 million restored by the end of this month, said Prince Abdulaziz. Saudi Arabia aims to pump 9.8 million barrels a day in October, he said, in line with recent months.
The Saudi comments were met with some skepticism. Full restoration of pre-attack capacity at Abqaiq processing facility will only be completed “as we approach the end of the year,” Bjornar Tonhaugen, an analyst at consultant Rystad Energy A/S analyst, said in a report on Wednesday. He expected almost 2 million barrels a day of Arab Light and Extra Light crude to be off-line in September and October.
Brent crude dropped 6.5 per cent on Tuesday after the kingdom’s reassurances, but that only partially erased Monday’s 15-per-cent surge, the biggest since the contract started trading in 1988.
The suspension of 5.7 million barrels day of Saudi production by the attack — the worst sudden loss in the history of the global oil market — exposed the inadequacy of the rest of the world’s supply buffer. Beyond the kingdom, other participants in the OPEC+ cuts, such as Russia, Kazakhstan and the United Arab Emirates, could restore a few hundred thousand barrels a day of idled production, but that’s not enough to offset Saudi losses.
Aramco ramped up offshore fields to maximum to replace some lost production, Nasser said. Customers were also being supplied using stockpiles, though some buyers are being asked to accept different grades of crude, a person familiar with the matter said.