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Saudi Arabia to restore 11 million b/d production capacity by end September: energy minister

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Saudi Arabia to restore 11 million b/d production capacity by end September: energy minister

 

 

Abqaiq is processing some 2 million b/d

Oil prices fall after Saudi attack update

Aramco IPO plan still set for next 12 months

 

Saudi Arabia expects to restore most of the crude production affected by attacks on two of its key oil facilities within two weeks, the country's energy minister said Tuesday, calming market fears over a protracted loss of some 5% of global oil supplies.

 

The world's biggest oil exporter plans to restore its production capacity to 11 million b/d by the end of September and recover its full capacity of 12 million b/d two months later, the country's energy minister, Prince Abdulaziz bin Salman, told a press briefing. Saudi Arabia has already restored more than half of the oil production capacity damaged in Saturday's attacks on the two facilities, Abdulaziz said.

The country's massive Abqaiq oil processing facility and its Khurais oil field were hit by aerial attacks that resulted in the temporary suspension of 5.7 million b/d or about half of Saudi Arabia's crude production capacity.

 

 

 

 

Abqaiq is currently processing some 2 million b/d of crude, down from 4.9 million b/d before the attacks, the CEO of state-owned oil giant Saudi Aramco Amin Nasser told the briefing. Repairs to Abqaiq are expected to be completed by the end of the month, he said.

"During the past two days, we have been able to contain the damage and restore more than half of the output that was knocked down by this terrorist attack and therefore the company will able to fulfill all its commitments to customers during this month by drawing from stocks of crude," Abdulaziz said.

OIL PRICES FALL

The comments caused crude prices to soften, with front-month ICE Brent futures falling around $1/b to $64.50/b in US trading. Earlier Tuesday, Brent slumped by $4/b to as low as $63.91/b after a report that the damaged Saudi capacity would come back onstream earlier that initially expected. The benchmark contract initially jumped almost 20% to $71.95/b at Monday's market open following the attacks.

"The latest news means that we will not be rushing to revise up our oil price forecast of $60/b at end-2019," Capital Economics' Caroline Bain said in a note after the Saudi announcement.

Analysts had predicted an extended Saudi outage would result in a price squeeze, given that other producers lack the ability to raise their output sufficiently to offset the losses.

Aramco on the weekend had already said it planned to use its vast storage inventories to offset some of the lost production.

Abdulaziz said Saudi Arabia's strategic oil stocks have already "helped us" in meeting output and export demands, but gave no further details on the use of the stocks.

Saudi Arabia, the world's largest crude exporter, pumped 9.77 million b/d in August, according to the latest S&P Global Platts survey of OPEC production. The kingdom held 187.9 million barrels of crude in storage as of June, according to the Joint Organizations Data Initiative. This implies the kingdom has 26.8 days of cover, assuming zero crude production and a steady export rate of 7 million b/d, which is what Saudi Arabia has exported in recent months. Saudi Arabia holds crude in storage in domestic tanks as well as at sites in Egypt, Japan and the Netherlands.

IPO STILL ON TRACK

Despite the oil attacks, Saudi Arabia still plans to go ahead with its long-delayed IPO for Aramco, with the sale of a 5% stake in the oil giant expected "anytime" during the next 12 months, Aramco chairman Yasir Othman Al-Rumayyan said during the briefing.

Saudi Arabia's oil exports will be unaffected in September, so there will be no impact on Aramco's oil revenues, Abdulaziz said.

Abdulaziz said Saudi Arabia is still in the process of estimating the cost of repairing its damaged oil facilities, but does not know who was behind the "sabotage acts."

The strikes on the critical oil facilities have been claimed by Houthi rebels in Yemen, but the US has already said it believes Iran is behind the attacks.

Abdulaziz said the attack is "not just an attack on the kingdom but its negative impact will hit the global economy and security of energy supplies."

The international community "needs to take more serious and decisive action and to punish the countries that are involved or finance these terrorist acts," he said.

 

 

 

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Attacks lay bare Saudi Arabia's oil vulnerability

 

Oil markets are reeling from the biggest attack on oil infrastructure since the Gulf War after drones hit Saudi Arabia's key Abqaiq processing facility and Khurais oil field. The attacks have taken 5.7 million b/d of oil production offline, about half of the kingdom's capacity and some 5% of global supplies.

 

Claimed by Iran-backed Houthi rebels, the attack caused spot Brent crude to spike 19% to $71.95/b at market open Monday before the oil benchmark slipped back to around $66/b. The threat of an extended supply outage from Saudi Arabia, the world's top crude exporter, highlights the lack of spare production capacity in the market, with the impact of this being felt across upstream and downstream markets.

 

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(Bloomberg) -- Saudi Arabia attempted to move beyond the worst oil disruption in its history, assuring the world that crude exports will not suffer, its damaged facility had partially restarted and production capacity would be back to normal within months.

The long-awaited statement on Tuesday from the kingdom -- which before the strike pumped almost 10% of the world’s oil -- gives the market much-needed clarity after days of speculation over how severe was the damage at the Abqaiq plant.

However, it’s slower progress than was initially expected and crude prices remain elevated as traders factor in higher risks for Saudi supply.

“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. “Thus the company will be able to meet all its commitments to customers this month by drawing on its crude oil reserves.”

Slow Progress

Abqaiq has restarted and is now processing about 2 million barrels a day, said Aramco Chief Executive Officer Amin Nasser. The facility should return to pre-attack levels of about 4.9 million barrels a day by the end of September, he said.

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. That outlook became more pessimistic in subsequent days as photos were released showing the scale of the damage at the crucial facility.

Exports Maintained

The minister and CEO assured customers that 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 its 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 oil market has been gripped with uncertainty since the attack -- initially claimed by Houthi rebels in Yemen, but later blamed on Iran by the U.S. Brent crude fell 5.7% to $59.31 a barrel in London as of 7:24 p.m. The international benchmark jumped the most on record on Monday.

Unprecedented Disruption

That historic price gain underscored the unprecedented nature of the disruption caused by the attack. For decades, Saudi Arabia has been the oil market’s great stabilizer, maintaining a large cushion of spare production capacity that can be tapped in emergencies, such as the 2011 war in Libya.

The halt of 5.7 million barrels day of the kingdom’s production -- the worst sudden supply loss in history -- exposed the inadequacy of the rest of the world’s supply buffer. Aramco ramped up its offshore oil fields to maximum replace some of the 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 earlier this week.

But 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 not enough to offset the Saudi losses.

Escalation Threat

Even as Aramco fixes the damage at Abqaiq, the possibility of further escalation of conflict in the Middle East hangs over the market.

Tehran and Riyadh are historic foes that have been backing opposite sides in Yemen’s long-running civil war. The volatile situation in the region finally boiled over earlier this year as U.S. President Donald Trump used sanctions to attempt to choke off all of Iran’s oil exports -- which are the lifeblood of its economy -- after he unilaterally withdrew from an international nuclear deal.

Since then the Persian Gulf, source of about a third of the world’s seaborne oil exports, has been under siege -- targeted by air, sea and land. While Trump has shown some reluctance to go to war, there are also few prospects for easing tensions as Saudi Crown Prince Mohammed bin Salman decides how to respond to the assault.

Prince Abdulaziz said he wouldn’t comment on whether Iran was responsible for the attack. The Pentagon is preparing a report on who was to blame and intends to make it public within 48 hours, a U.S. defense official said on Tuesday.

Houthi rebels in Yemen, who are backed by Tehran, said on Monday that oil installations in Saudi Arabia will remain among their targets and their weapons can reach anywhere in the country. Iran’s supreme leader Ayatollah Ali Khamenei said on Tuesday that his country won’t negotiate with the U.S. on any level neither in New York or anywhere else.

The threat to key Saudi infrastructure has loomed over the planned initial public offering of Aramco. The state-run company will still be ready for a share sale any time in the next 12 months, Chairman Yasser Al Rumayyan said at the briefing.

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