Oil Set To Spike After Report Saudi Repairs At Abqaiq May Take "Up To Eight Months"

[Guest]

Here's a surprise, not the 3 months, then 1 month like they said. Shocker.

Oil too is likely to catch a bid after the WSJ reported that it may take "up to eight months", rather than 10 weeks company executives had previously promised, to fully restore operations at Aramco damaged Abqaiq facility, suggesting the crude oil shortfall will last far longer than originally expected.

FULL ARTICLE - https://www.zerohedge.com/commodities/oil-set-spike-after-report-saudi-repairs-abqaiq-may-take-eight-months

The official reason for the delay: the supply-chain is unable to respond to the Saudi needs. Specifically, Aramco is" in emergency talks with equipment makers and service providers, offering to pay premium rates for parts and repair work as it attempts a speedy recovery from missile attacks on its largest oil-processing facilities."  

Following a devastating attack on its largest oil-processing facility more than a week ago, Aramco is asking contractors to name their price for patch-ups and restorations. In recent days, company executives have bombarded contractors, including General Electric , with phone calls, faxes and emails seeking emergency assistance, according to Saudi officials and oil-services suppliers in the kingdom.

"One Saudi official said costs could run in the hundreds of millions of dollars", the WSJ reported.

The unofficial, and more likely, version: Aramco is unhappy with how quickly oil prices dropped after the "Iranian attack", and since its objective from the very beginning - especially with its IPO looming - was to get oil prices higher, and with its reputation to prevent "outside shocks" in tatters, it is now creating its own bottlenecks in restoring output. 

 

 

Edited September 22, 2019 by Guest
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[Ward Smith + 6,615]

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But that's only in the short to medium term: here SocGen warns that in the longer-term "the higher the price goes, the harder it will fall" and explains:

Energy and oil use per unit of real GDP in the West has been in a steady decline of course. However, the risk remains that a price spike may contribute to both softening GDP and oil demand in the new demand centres (East), and to politicians’ renewed determination to speed up the energy transition away from fossil fuels. The oil majors will not suddenly abandon capital discipline, though they will benefit from the temporary margin and free cash flow expansion of a spike. But the higher the price goes, the harder it will fall. There are many precedents of previous supply shocks reviewed in brief on the next page. Historically, sharp disruptions and oil price spikes drive subsequent oil demand and GDP weakness. It is then just a question of the degree of a country’s GDP sensitivity to oil prices (manufacturing versus service economies) as to how serious that economic impact is. The US is more balanced nowadays between its large consuming sector and a large shale liquids producing sector. But the main drivers of global oil demand growth in the East (China, Japan et al.) will suffer negative effects from higher oil price.

Or, to quote myself, "It's the demand, stupid"

Edited September 22, 2019 by Ward Smith

[Guest]

Haha yeah I saw that bit.

Ride the waves @Ward Smith , ride those waves.

Edited September 22, 2019 by Guest