Saudi Arabia and OPEC are doomed.

[Warlord]

A good old fashioned war.

[Swordsmyth]

Saudi Officials Say Oil Production to Return to Normal Levels by Monday

[Swordsmyth]

And there it is, moments before oil markets open: upon the US release of declassified satellite images showing precision strikes on critical spheroids at the world's largest oil processing facility at Abqaiq one market analyst alarmingly writes,

"We think this is a months fix, not days/weeks. Oil going up even higher."

This after reports just before the satellite photos were released commonly said a minimum of "weeks" would pass before full Saudi Aramco production capacity comes back online.
They appear to show approximately 17 points of impact on key infrastructure at the site after Yemeni Houthis claimed a successful drone strike of up to ten unmanned aerial vehicles with explosives.

However, US and Saudi officials, still amid an ongoing investigation, have told reporters they are "certain" the attack actually originated from Iraq, especially as the debris and precision targeting show a level of "sophistication" which would link it to Iran's elite IRGC.
Dan Tsubouchi, chief market strategist at Calgary-based SAF Group, is predicting a fix that will take months based on the extent of the damage revealed in the new images, driving up oil to prices beyond the initial possibly short-sighted predictions this weekend.

According to Fox News:

The Washington-based Center for Strategic and International Studies in August had identified that region as the plant's stabilization area. That zone included "storage tanks and processing and compressor trains — which greatly increases the likelihood of a strike successfully disrupting or destroying its operations," the center wrote at the time.

Niether Riyadh officials nor the state-run oil giant Saudi Aramco have yet to confirm the extent of the damage, but have only made assurances they will tap its global reserves network.

Aramco's president and CEO Amin Nasser announced Sunday, “Work is underway to restore production and a progress update will be provided in around 48 hours.”


https://www.zerohedge.com/energy/dec...i-oil-facility

[Swordsmyth]

Looks to me like the cost to produce oil in KSA is going to be quite a bit higher as they pay for fixing this mess. The bigger hidden cost will be more security.

We have heard the claims that it's only $2-10/bbl to produce oil over there. Well if you look at the infrastructure being used, that's very expensive stuff and if much of it is destroyed, the replacement cost will be quite a bit higher. The low prices they have been getting for oil lately aren't allowing them to build a surplus capital buffer and their inventory is the lowest since 2008. If they have delivery contracts at fixed prices, they are screwed.

I personally think this stuff is going to cost them double or triple what it cost to originally build because they will want it in short order. However, most of the stuff they use in these GOSPs is custom made, i.e. long lead times. If that is the case, look for a loss of 3mmbbl/day for 6 months to a year.

More at: https://community.oilprice.com/topic...ontrol/?page=2

[Swordsmyth]

Saudi Arabia has shut down its 230,000 bpd pipeline carrying Arab Light crude to Bahrain, after this weekend’s attacks took 5.7 million bpd of Saudi oil production—mostly light grades—offline, Reuters reported on Monday, quoting two trade sources.

The pipeline with a capacity to ship between 220,000 bpd and 230,000 bpd of Arab Light crude oil from Aramco to Bahrain’s oil company Bapco was closed after the attacks crippled the production of mostly light grades in Saudi Arabia, one of Reuters’ sources said.


On Saturday, the Abqaiq facility and the Khurais oil field in Saudi Arabia were hit by attacks, which resulted in the suspension of more than half of Saudi Arabia’s oil production. The onshore Khurais oil field has the capacity to produce 1.2 million bpd of Arab Light, according to EIA estimates. The Abqaiq facility, for its part, is considered to be the most important oil processing plant in the world. The facility processes crude oil from the major Saudi oil fields Ghawar, Shaybah, and Khurais.
All those three fields produce Arab Light or Arab Extra Light. Ghawar has the capacity to pump 5.8 million bpd of Arab Light, while Shaybah has a capacity of 1 million bpd of Arab Extra Light, according to EIA estimates based on data from Saudi Aramco, Arab Oil and Gas Journal, and IHS Markit.
While the Saudis closed the oil pipeline to Bahrain, the Bahraini company Bapco is scrambling to secure tankers to ship some 2 million barrels of crude oil from Saudi Arabia, the trade sources told Reuters.
Bapco has shut down a crude distillation unit at the Sitrah refinery, while another crude distillation unit, a vacuum distillation unit, and a visbreaker unit have reduced their run rates to 45 percent, Reuters reported, citing an alert to clients sent by research company IIR.

https://oilprice.com/Latest-Energy-N...r-Attacks.html

[Swordsmyth]

Saudi Arabia’s disrupted oil production may last longer than originally thought, Amrita Sen, chief oil analyst at Energy Aspects Ltd., told Bloomberg on Monday, with full resumption of oil production perhaps not returning for weeks—or even months.

Saudi Arabia, too, is holding a more reserved position that initially thought, believing now that less than half the capacity at the Abqaiq processing plant can be restored quickly, according to Bloomberg sources that spoke on condition of anonymity. One of the longer lead-time items of the restoration are Abqaiq’s stabilization towers that separates out the dissolved gas from the crude oil—a distillation process that sweetens sour crude, if you will.


Just the specialized parts to repair those towers could take months to get. Five out of the 18 stabilization towards were hit, indicating a “very specific, accurate targeting of those particular infrastructures,” Phillip Cornell, former senior corporate planning adviser to Aramco, cited by Bloomberg.
Abqaiq has a capacity of 5.7 million barrels per day of light crude.
To compensate, Aramco is bringing back online previously shuttered oilfields, and it is drawing on its oil reserves to cushion the blow. What can’t be compensated for by cranking up idled fields and siphoning off crude reserves is being satisfied by substituting a heavier grade oil—but all these emergency measures have limits.
Saudi Arabia’s stockpiles are only sufficient enough to last 26 days, according to Rystad Energy, so if the outage were to last “months” rather than days or weeks, customers may actually feel the supply crunch.

More at: https://oilprice.com/Energy/Crude-Oi...s-Analyst.html

[Swordsmyth]

OPEC has sufficient spare capacity to respond to supply shortages after this weekend’s attacks on oil infrastructure that took more than half of Saudi Arabia’s oil production offline, Suhail Al Mazrouei, the energy minister of the United Arab Emirates (UAE), said on Monday.

“We have spare capacity, there are volumes that we can deal with as an instant reaction but we need to analyse the full impact, and the assessment of the incident is under way in Saudi Arabia,” Al Mazrouei said, as carried by The National.
The UAE will support Saudi Arabia, if needed, he added.
“We as the UAE, as a member of OPEC, stood fast and ready to support KSA in any shape or form. The technical side, from supply, if there is a shortage. We have certain capacity that we can put in the market,” Al Mazrouei said.
Still, the UAE energy minister, as well as OPEC’s Secretary General Mohammad Barkindo, said it was too early to rush into emergency meetings and put extra supply on the market, at least until Saudi Aramco provides the first updates about how long it would take to restore production.


The Saudis haven’t declared any force majeure, the situation is under control, and Saudi Arabia has ample supply, OPEC Secretary General Mohammad Barkindo told “Bloomberg Markets: European Open” in an interview on Monday.


In case of prolonged outage in Saudi Arabia, OPEC’s UAE, Kuwait, and Iraq, plus non-OPEC’s Russia could bring in 800,000 bpd-900,000 bpd of production online, which is significantly less than the outage in Saudi Arabia, Warren Patterson, Head of Commodities Strategy at ING, said on Sunday.

“The issue for the market is that more than 70% of OPEC spare capacity sits in Saudi Arabia,” Patterson noted.

More at: https://oilprice.com/Energy/Crude-Oi...Necessary.html

[Swordsmyth]

U.S. shale drillers saw their share prices surge on Monday, lifted by the nearly 15 percent jump in crude oil prices following the attacks on Saudi oil infrastructure.
As of Monday, Saudi Aramco indicated that it would take weeks or months to fully restore operations at the Abqaiq facility, the largest oil processing complex in the world. Saudi production immediately plunged by 5.7 million barrels per day (mb/d), and while some was only sidelined for precautionary reasons, the latest assessments are that less than half of the disrupted capacity can come back online in the short run.


The attack has rattled the oil market and once again raised the prospect of regional war. Oil prices spiked on Monday, and could remain elevated for some time. The longer the outage, the more significant the price increase.
“Should the current level of outage be announced to last for more than six weeks, we expect Brent prices to quickly rally above $75/bbl, a level at which we believe an SPR release would likely be implemented, large enough to balance such a deficit for several months and cap prices at such levels,” Goldman Sachs analysts wrote in a note on September 15. “An extreme net outage of a 4 mb/d for more than three months would likely bring prices above $75/bbl to trigger both large shale supply and demand responses.”


U.S. shale drillers were the beneficiaries of turmoil in the Middle East. Chesapeake Energy was up nearly 18 percent on Monday. SM Energy surged nearly 28 percent. EOG Resources rose by 7 percent. And so on.


U.S. shale cannot help in the short-term. Despite wrong-headed descriptions in years past describing shale as a swing producer, it takes time to adjust drilling plans and to bring supply online.
But if WTI remains in the mid-$60s rather than the mid-$50s, supply growth could reach 2 mb/d next year instead of just 1 mb/d, Bernadette Johnson, vice president of market intelligence at consultants Enverus, told Reuters.
More at: https://oilprice.com/Energy/Energy-G...il-Prices.html

[Swordsmyth]

U.S. crude export demand surges after attack on Saudi facilities

[Swordsmyth]

ExxonMobil has made another oil discovery offshore Guyana, adding to a previously estimated recoverable resource of more than 6 billion oil-equivalent barrels on the Stabroek Block, just a few months before it begins oil production from the Liza Phase 1 development.
Exxon encountered a high-quality oil-bearing sandstone reservoir in the Tripletail-1 well in the Turbot area on the Stabroek Block, the U.S. supermajor said in a statement.
“Together with our partners, ExxonMobil is deploying industry-leading capabilities to identify projects that can be developed efficiently and in a cost-effective way,” said Mike Cousins, senior vice president of exploration and new ventures at ExxonMobil.
ExxonMobil has made more than a dozen oil discoveries offshore Guyana, which is the supermajor’s key development priority in the coming years together with significantly boosting shale production in the Permian basin.


While Exxon has been the undisputed leader in exploration success in the newest offshore hot spot, other oil companies have also had exploration success recently.Tullow Oil announced last month an oil discovery on the Orinduik license, and said this week that it had made another oil discovery on the same license.
“I am very pleased that we have made back-to-back discoveries in Guyana and successfully opened a new, shallower play in the Upper Tertiary age of the Guyana basin with our second well,” Angus McCoss, Exploration Director at Tullow Oil, said in a statement on Monday.
“The Joe-1 discovery and its surrounding prospects represent another area of significant potential in the Orinduik Block and we are greatly looking forward to the next phase of the programme as we continue to unlock the multi-billion barrel potential of this acreage,” McCoss said.

More at: https://oilprice.com/Latest-Energy-N...re-Guyana.html

[Swordsmyth]

Chevron could restart oil production from the so-called partitioned zone between Saudi Arabia and Kuwait “relatively quickly”, chief executive Michael Wirth told CNBC in an interview.

Chevron has an agreement with Saudi Arabia to produce oil from the fields in the partitioned zone on its behalf. However, a territorial dispute between the Kingdom and Kuwait put production of oil there on hold four years ago.
Previously, two fields in the partitioned zone—Khafji and Wafra—pumped half a million barrels daily. Operational differences and a worsening in bilateral relations led to the suspension of production in 2015. Last year, there was talk about restarting joint production after the United States called on its Gulf allies to increase production to keep rising oil prices from going too high.

At the time, sources told Reuters Saudi Arabia had wanted more control over the joint oil production operations in the zone and the Kuwaitis had been unwilling to accept that.
Now, following the Saturday attacks on a Saudi oil field and a processing plant with a capacity of 5 million bpd, talk about joint production in the PZ is once again on the table.

More at: https://oilprice.com/Latest-Energy-N...y-Quickly.html

[Swordsmyth]

If you think they can be believed:


Saudi Arabia’s energy minister held a highly-anticipated press conference on Tuesday, updating the world on the damage at Abqaiq. He struck a confident tone, stating that half of the disrupted output is already back online and that repair work would be completed by the end of the month. In the meantime, the country would use inventories to keep export flows continuing as usual.

More at: https://oilprice.com/Energy/Crude-Oi...Predicted.html

[Swordsmyth]

The weekend attacks on vital oil infrastructure in OPEC’s largest producer and the world’s top oil exporter Saudi Arabia could be a boon to Brazil, a non-OPEC producer which is not part of the OPEC+ production cut deal and which is set to boost its oil production and access to some of its prized oil exploration areas.
With security risks in the Middle East now higher than many—if not all—analysts thought possible just a week ago, investors and oil buyers could turn to oil producing nations far from the tensions in the Persian Gulf, analysts and emerging markets investors say.


“I think people are beginning to think well maybe we should be looking to Brazil, for example, for their oil supply, to Mexico, to other countries in terms of where oil can come from,” veteran investor Mark Mobius of Mobius Capital Partners told CNBC on Monday, the first trading day after the attacks in Saudi Arabia left 5.7 million bpd of its production offline.
“If you look at the reserves that Brazil has, you’ll see that they can produce quite a lot of oil,” Mobius told CNBC.
After some delays in projects and heavy maintenance at the start of the summer, Brazil has boosted its oil and liquids production in the past two months and is set to be the second-largest contributor to non-OPEC oil supply growth this year and next, after the number-one growth driver, the United States.

Brazil’s oil production is set to grow in the near term, organizations and analysts say.
According to OPEC’s Monthly Oil Market Report for September, Brazil will see an 180,000-bpd annual rise in production this year, and another
290,000 bpd annual supply growth in 2020.
Crude oil output is expected to increase by between 320,000 bpd and 360,000 bpd in the second half this year compared to the first half of 2019, when delays and maintenance led to production declines.
More than 80 percent of the estimated additional production from new projects in 2020 is expected to come from the Búzios (x-Franco), Lara, and Lula fields, OPEC said.
Regardless of the developments in the Middle East, Brazil has a chance to significantly boost its oil production if its own regulatory and investment climate is attractive enough for major investments.

More at: https://oilprice.com/Energy/Energy-G...ly-Crisis.html

[Swordsmyth]

Saudi Aramco has offered Indian Oil Corp Arab Heavy crude oil instead of Arab Light following an attack on its oil facilities over the weekend, an industry source told Reuters on Tuesday.IOC will receive full allocated volumes from Saudi Aramco in September and October, the source said, declining to be named as he was not authorised to speak with the media.

However Aramco has said they would give some volumes of Arab heavy instead of Arab mix oil, the source added. This indicates that Saudi is offering heavy grade instead of light as Arab Mix is a combination of Arab light and heavy.
No immediate comment was available from IOC.

https://finance.yahoo.com/news/saudi...074828569.html

[UWDude]

If you think they can be believed:


Saudi Arabia’s energy minister held a highly-anticipated press conference on Tuesday, updating the world on the damage at Abqaiq. He struck a confident tone, stating that half of the disrupted output is already back online and that repair work would be completed by the end of the month. In the meantime, the country would use inventories to keep export flows continuing as usual.

More at: https://oilprice.com/Energy/Crude-Oi...Predicted.html

How many more missiles can the Houthi make in a month?

XD

[Swordsmyth]

How many more missiles can the Houthi make in a month?

XD

The oil industry forum I lurk at says they can't possibly restore production that fast.

[Swordsmyth]

Saudi Arabia has approached Baghdad with a request to buy crude oil from OPEC’s number-two to compensate for its production outage caused by the Saturday attacks, sources who declined to be named told S&P Global Platts.
According to one of the sources, Aramco had asked Iraq’s State Oil Marketing Organization, or SOMO, for some 10 million barrels of Basra Light, to load in October and November.


Saudi Arabia’s crude oil in storage was about 180 million barrels in July, which would have been enough to cover exports at the rate of 6.88 million bpd for a period of almost a month.
Now, the S&P Global Platts sources say Riyadh is also planning to use some of the oil it had allocated for domestic consumption to fulfill its export obligations. Iraq, in the meantime, has yet to respond to the request as it has its own export orders to fill.

More at: https://oilprice.com/Latest-Energy-N...q-For-Oil.html

[Swordsmyth]

Kuwait raised the security alert level at all of its ports, affecting both commercial ports and oil facilities, according to the state-run Kuwait News Agency, quoting a statement from Kuwait's minister of commerce and industry on Friday.

The decision reflected heightened tensions in the region, particularly over oil infrastructure and seaport facilities, and follows Wednesday's announcement from Kuwait's army that it was raising its readiness levels and carry out military exercises amid current regional tensions.
Kuwait's move comes after two important oil production facilities in Saudi Arabia were hit by drones and missiles last Saturday, taking offline more than 5 million barrels of oil production per day.

More at: https://oilprice.com/Latest-Energy-N...acilities.html

[Swordsmyth]

Much of the attention concerning the crippling damage to Saudi Aramco facilities struck in last week's aerial attack ultimately blamed on "Iranian sponsorship" by US and Saudi officials has focused on Abqaiq processing plant, but on Friday the first on the ground images from the kingdom's giant Khurais oil field — the country's second largest — have been revealed, showing scorched infrastructure, ruptured pipelines, and "a mess of oil melted to asphalt, twisted and charred metal grates" according to an on site Bloomberg report.


And yet Aramco has remained insistent that the field will return to pre-attack output levels this month, after the company reported losing half its daily output in the aftermath of the early Saturday attacks, impacting a whopping 5% of total global supply.

Per Bloomberg, Khurais has a capacity of 1.45 million barrels a day, processing all oil on site; however the attack took out four 300-foot towers essential to the production process.

Like at the Abqaiq processing plant nearer the coast, the strikes — whether by drones or ballistic missiles (debris showed by the Saudi Defense Ministry this week featured both) — appeared remarkably precise.
The Saudis have counted a total of twenty-five drones and missiles used in the twin attacks, after statements by Yemen's Houthi rebels claimed ten drones were used.

CNBC: RT @CNBCi: Abqaiq, the world’s largest oil facility, was attacked in 18 different locations on Saturday, CNBC's @_HadleyGamble is on the ground at Saudi Aramco's facilities. https://t.co/vcgOhkE03m pic.twitter.com/qEJd6QZOtz
— Paul M Smith BA Hons (@paulmsmith1975) September 20, 2019

Bloomberg reports of the recovery progress at Khurais:

The Khurais field and processing plant resumed 30% of production within 24 hours of the strike and will produce 1.2 million barrels a day by the end of September, Fahad Al Abdulkareem, general manager for Aramco’s southern area oil operations, said at a briefing on Friday. Workers are at the site 24 hours a day to speed the repairs, according to the company.

The precision nature of the strikes, which Washington has claimed can only point to Iranian involvement given the level of sophistication needed to conduct such an operation, is even more evident at the Abqaiq facility.

Images released via the #Saudi Press Agency from the Defense Ministry briefing earlier show the first images of up close damage from the #Abqaiq #Aramco attack. pic.twitter.com/CLFQ7Pfh1A
— Aurora Intel (@AuroraIntel) September 18, 2019

Given the sheer distance the drones would have to travel, whether from Yemen or possibly Iran, combined with 18 precision strikes on the 70-year old but state of the art Abqaiq facility, a number of analysts are questioning whether the operation had inside the kingdom help.

Bill Blain of Shard Capital is one of them, who notes "a number of my sources suggest things look increasingly questionable in the desert kingdom."
Blain comments:

Looking at the photos of the Houthi drone strikes, the damage and the holes made in the gas tanks look suspiciously regular and well placed. MBS’s shakedown of his royal cousins and the nation’s business leaders stands alongside rising revulsion at his own spending. As defacto absolute ruler he feels above question, but domestic tensions are rising. More than a few analysts suspect the Houthis may have had inside assistance for a growing Saudi domestic insurgency.

"Trump and Kushner are going to struggle with that one.." he concluded.

Indeed, considering the kingdom's historically restive Shia community in the eastern part of the country would also avail itself to help any operation intent on striking sensitive state facilities, the possibilities are endless.

https://www.zerohedge.com/energy/fir...field-revealed

[Swordsmyth]

Saudi state oil firm Aramco has told Japanese refiner JXTG Nippon Oil & Energy about a possible change in shipment, raising concern about the kingdom's ability to supply crude oil a week after attacks on its refineries, the Nikkei Asian Review reported.Aramco did not specify a reason for the change in oil grade supplied to Japan's biggest refiner from light to heavy and medium starting October, Nikkei said https://s.nikkei.com/2kVAbFR, citing JXTG officials.
JXTG officials suspect that Aramco is taking more time than expected to fix its desulfurization facility, which is necessary to produce light-grade crude used in the production of gasoline and light gas oil, the newspaper said.
At least three supertankers that loaded crude in Saudi Arabia this week for China and India had their crude grades switched from light to heavy oil while more buyers in Asia have been asked to delay shipments and switch grades in September and October, Reuters reported, citing sources and data from Refinitiv and Kpler.

More at: https://news.yahoo.com/saudi-arabia-...031202120.html

[UWDude]

The oil industry forum I lurk at says they can't possibly restore production that fast.

Oil forums are experts on cruise missile production levels of Yemen?

XD

[Swordsmyth]

Oil forums are experts on cruise missile production levels of Yemen?

XD

Oil production in Saudi Arabia.

The other popular opinion is that production will be restored soon because it was an inside job to boost oil prices.

If the Houthis really did it then the Saudis will have to take them up on their offer or be destroyed:

The attacks on Saudi soil with drones and ballistic missiles will stop, the Houthis have vowed, if Saudi Arabia will stop its airstrikes over Yemen, according to Bloomberg, who quoted Yemen Shiite Houthi rebel leader Mahdi al-Mashat, who spoke on Al Masirah TV.

The Iran-backed Houthis have claimed ownership of the devastating attacks that crippled Saudi Arabia’s oil infrastructure over the weekend that took offline 5.7 million barrels per day—which is half of Saudi Arabia’s total oil production--sending oil prices sharply upward.

More at: https://oilprice.com/Latest-Energy-N...n-In-Yeme.html

Yemen's Houthi rebels say they are halting all drone and ballistic missile attacks on Saudi Arabia and are waiting for a "positive response."

More at: https://news.yahoo.com/latest-saudi-...125200613.html

[Swordsmyth]

While S&P futures may spike at the open following Saturday's news from the NYT that the "the delegation of Chinese agriculture officials that had planned to travel to Montana and Nebraska in the coming week didn’t cancel the trip because of any new difficulty in the trade talks" but "instead, the trip was canceled out of concern that it would turn into a media circus and give the misimpression that China was trying to meddle in American domestic politics", oil too is likely to catch a bid after the WSJ reported that it may take "up to eight month", 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.

Saudi officials say there is little sense of calm at the highest levels of the company and the Saudi government, however. It could take some contractors up to a year to manufacture, deliver and install made-to-measure parts and equipment, the Saudi officials said. #OOTT https://t.co/dtUzWlem9c
— Summer Said (@summer_said) September 22, 2019

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 bottom line: the extent of the damage means a return to normal operations at Abqaiq could take up to eight months, said some Saudi officials. Most technical experts who have seen the destruction firsthand said they share that view.

“Repairing the damaged units will take time, anywhere from two to nine months depending on the damage, even if Aramco had contingencies in place and spare tailor-made equipment,” said IHS Markit in a note.

So what does it mean for the oil price if millions of barrels of oil in daily output will be delayed from coming back to market? Covneniently, SocGen had a report discussing just that scenario on Friday, in which it said that "if production recovery is delayed (or we have any other supply disruptions), prices do not decline, they rise toward $70/bbl on average. This is a very conservative view based on the simple linear regression shown below on the right. Typically, when time spreads are at the levels we would forecast, the observed flat price does not sit on the regression line. The cluster is above the line and corresponds with prices approaching something more like $75/bbl (red circle)."

In other words, at least $10/barrel upside from here from a mere production delay, is quite likely.
* * *
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.

The only question for Saudi Arabia is whether it can pull of the Aramco IPO in time, while Brent prices are still high, and before the "longer-run" arrives.

More at: https://www.zerohedge.com/commoditie...e-eight-months

[Swordsmyth]

Saudi Arabia’s comments about its hydrocarbons industry have long been regarded by industry experts as being as believable as China’s comments about its economic growth: that is, not at all. Saudi Arabia’s skill in lying is definitely improving, though, from the outright transparent lies about its level of oil reserves, spare capacity, and why the omni-toxic Aramco should nonetheless be valued at US$2 trillion.
Its latest lies - along the lines of ‘everything is fine after the attacks and we will be back to full production really quickly’ – are relatively nuanced. “The Saudi statements may not contain any direct falsehoods as such but nor are they entirely being fulsome with the truth,” Richard Mallinson, senior energy analyst for Energy Aspects, in London, told OilPrice.com last week.


The stage was set for the Saudis’ latest lying extravaganza with the aerial attacks on its massive Abqaiq oil processing facility and Khurais oil field launched, according to various sources, by Houthi ‘rebels’ in Yemen or by Iranian operatives in Yemen or in Iran. The effect of the combined attack on Abqaiq and Khurais caused the temporary suspension of 5.7 million barrels per day (bpd). This equates to well over half of Saudi Arabia’s actual crude oil production capacity, not the capacity figure that Saudi has plucked out of nowhere for geopolitical power purposes in recent years, and resulted in the biggest rise in oil prices in a single day ever.
Once the hedge funds, who had handily positioned themselves long some days before the attacks, had taken their profits, and younger traders remembered that the U.S. can release vast amounts of oil at the drop of a hat from its Strategic Petroleum Reserve to keep the price of oil – and, crucially ahead of an election year, the highly correlated and politically enormously sensitive gasoline pump price in the U.S. down – oil prices came down again, obviously.
A number of interesting things happened from the Saudi Arabian side as the prices went up and then went back down again. The first of these, as OilPrice.com was informed repeatedly by senior oil traders throughout the day, was the lack of real understanding that senior Saudi officials seem to have on how the oil market works or any details of Saudi’s own oil industry.
“I used to think the Saudis thought all of us [oil traders] were idiots, with all the rubbish they used to come out with and thought we’d believe, but recently it’s occurred to me that they genuinely don’t know anything about the oil industry, so they don’t understand that other people actually do know what they’re talking about and this has also been one of the reasons for the constant delaying of the Aramco sale, by the way,” one senior oil trader based in Asia told OilPrice.com.

The Aramco sale to one side for another time (although OilPrice.com has exclusively previously highlighted all of the lies pertaining to it), one particularly striking comment came from Saudi Arabia’s new oil minister, Prince Abdulaziz bin Salman, just after the attacks. He stated that the Kingdom plans to restore its production capacity to 11 million bpd by the end of September and recover its full capacity of 12 million bpd two months later.
“It was extremely telling that he spoke of ‘capacity’ and later of ‘supply to the market’, as these are terms that Saudi tends to use in order to avoid talking about actual production, as capacity and supply are not the same thing at all as actual production at the wellheads,” said Energy Aspects’ Mallinson. “What Saudi is trying to do by not revealing the true picture is to protect its reputation as a reliable oil supplier, especially to its target clientele in Asia, so we have to take all of these comments with a hefty pinch of salt,” he added.
So hefty a pinch of salt as to be mountainous in the case of its capacity and corollary spare capacity figures. The country has stated for decades that it has a spare capacity of between 2.0-2.5 million bpd, implying – given actual production during virtually all of this time averaging less than 10 million bpd - total production capacity of 12.0-12.5 million bpd. This level, though, or anywhere near it, has never been even remotely tested, with the highest production ever recorded being just over 11 million bpd in November last year.
This is despite the all-out oil price war that Saudi started in 2014 against U.S. shale producers to try to destroy the industry through low prices caused by flooding the markets with oil. “If the Saudis had anything near 12 million barrels per day capacity, that would have been the time to pump it but all it managed was just under 10 [million bpd] with 10.5 [million bpd] managed for just one month over that two-year period [2014-2016 before Saudi reversed it strategy],”
Additionally, the EIA defines spare capacity specifically as production that can be brought online within 30 days and sustained for at least 90 days, whilst even Saudi Arabia has said that it would need at least 90 days to move rigs to drill new wells and raise production to the mythical 12 million bpd or 12.5 million bpd level. Many serious oil market players now do not believe that the Saudis have anywhere near 2 million bpd of spare capacity, as it would imply production of 12 million bpd plus. Instead, many now believe that the Saudis have sustainable spare capacity of no more than around 0.5-1.0 million bpd.
Whatever Saudi’s actual capacity, there is absolutely no way that it can have made any accurate assessment of how long it would take to get back to any particular capacity level either – another lie. “Engineers we have spoken to have said that following an incident like this it would take several weeks just to assess the damage, never mind to begin doing anything about it, rather than the few days that the Saudis have taken and then announced the actual timeline – and a very short timeline at that – to bring back various stages of capacity,” said Energy Aspects’ Mallinson.
“Instead, what the Saudis will do to keep exports up is draw down supplies to its domestic industry and reduce the amounts it is sending to domestic refineries – one big refinery, SASREF, is conveniently bringing forward its planned maintenance for later in the year to now - and we hear very mixed reports which of the other refineries are operating at regular rates,” he added. “But some buyers are already being warned of delays, some are being offered swaps with other grades and so on,” he underlined.

Specifically, a number of customers of Saudi’s Arab Light and Arab Extra Light grades – the grades most affected by the recent attacks – have been offered Saudi’s Arab Medium or Arab Heavy as substitute grades.OilPrice.com understands from oil trading sources. This even applies to Saudi’s number one target country, China. A number of refineries have been told by Aramco that their rolling orders for Arab Extra Light crude cannot be supplied for the time being but can be switched for either Arab Medium or Arab Heavy, depending on the set-up of the refinery. Others, looking for their usual monthly supply of Arab Light have been told that this will be switched to Arab Heavy as a substitute for September loading at least.
The other measure that Saudi is taking - which it has vehemently denied but OilPrice.com can confirm from various oil trading sources and from sources in the Iraq Oil Ministry – is looking to buy Iraq oil grades, which are close to the key export grades that Saudi ships to various destinations, including Asia. “Aramco Trading Company has been aggressively checking prices and lot sizes for Iraqi crude with various [oil] trading houses since the attacks and are looking are shorter-term potentially rolling contracts,” one trading source told OilPrice.com last week.
“A number of the Iraqi grades are close in specifications to their Saudi counterparts, and part of this activity by Saudi to fill customer supply quotas for these grades is to make sure that the demand we are still seeing for such Iranian grades from Asia, but mainly China, is not boosted to make up for the shortfall from Saudi.,” a senior source who works closely with Iraq’s Oil Ministry told OilPrice.com.

More at: https://oilprice.com/Energy/Crude-Oi...roduction.html

[Swordsmyth]

The attacks on vital Saudi oil infrastructure that took offline more than half of Aramco’s oil production would likely mean that the Kingdom will not list its oil giant this year, two sources with direct knowledge of Aramco’s thinking told Reuters.
The attacks on the Abqaiq facility and the Khurais oil field in Saudi Arabia on September 14 had investors anxious as the Kingdom had just accelerated plans to list Saudi Aramco in what would be the world’s largest initial public offering (IPO) ever. The heightened security risks following the attacks and Aramco’s actual ability to restore production could undermine the valuation of the company at this time, analysts believe.


Saudi Aramco now needs to build up confidence among potential investors, on top of fully restoring production, one of the sources told Reuters.

More at: https://oilprice.com/Energy/Energy-G...ramco-IPO.html

[Swordsmyth]

IF this is true the odds of an inside job go WAY up:



Saudi Aramco has restored Saudi Arabia’s oil production capacity to 11.3 million bpd—the level before the attacks on oil facilities ten days ago, Reuters reported on Wednesday, citing three sources with knowledge of the Kingdom’s oil company’s operations.
Separately, people familiar with the situation at Aramco told Bloomberg on Wednesday that Saudi Arabia is recovering from the September 14 attacks faster than expected—about a week faster than Saudi officials have given as a date to recover the full capacity, the end of September.

Despite continued reports that the Saudis would struggle to restore oil supply by the end of this month as they had promised and that repairs would likely take months rather than weeks, a source told Reuters on Monday that the Kingdom would fully restore by early next week the oil production lost in the attacks.
As of Monday, Saudi Arabia was said to have restored 75 percent of the production lost in the attacks. Output at the Khurais oil field was more than 1.3 million bpd as of Monday, while production from Abqaiq stood at around 3 million bpd.

According Reuters’ sources today, production at the Abqaiq plant is around 4.9 million bpd now.

More at: https://oilprice.com/Energy/Crude-Oi...ck-Levels.html

[Swordsmyth]

Saudi Arabia is considering doubling the size of the initial public offering for the Saudi Arabian Oil Co. from a 5 percent stake in the state-owned oil company to 10 percent, The Wall Street Journal reported Sept. 24. The company's plan to begin the IPO by selling a 1 percent stake on the Saudi Tadawul exchange before opening it to international investors remains in place.

More at: https://worldview.stratfor.com/situa...ach-10-percent

[Swordsmyth]

The spike in security risks in and around the Persian Gulf and the Strait of Hormuz in recent months has pushed up the cost of getting crude oil out of the Middle East, Lois Zabrocky, chief executive of tanker owner International Seaways, told CNBC in an interview on Thursday.
Several high-profile incidents in recent months have increased the tension in the Middle East and in the most important oil shipping corridor in the world, the Strait of Hormuz, which is in close proximity to Iranian coasts.
Since May, incidents, tanker seizures, and attacks on oil tankers at sea in the Gulf, and most recently, the attacks on vital oil infrastructure in the world’s top oil exporter Saudi Arabia, have added more costs to the insurance premiums because the area is now perceived at its highest risk level since at least 2005.
International Seaways is now performing security assessment every time its oil tankers enter the Strait of Hormuz, and the company has tightened security on board the vessels with additional staff, Zabrocky told CNBC.
“We hesitate to enter until we have orders from our customers that they are ready for us to load and then we go ahead and go into the Strait of Hormuz,” Zabrocky said.
International Seaways is putting additional security advisors with infrared ‘eyes and ears’ on its tankers, “but we are not arming our vessels,” the manager told CNBC.
Asked about whether the costs have gone up in recent months, Zabrocky said:
“It does indeed cost more for a war risk premium to enter the Strait of Hormuz at these times, so all of these heightened concerns add cost to getting the oil out of the Middle East.”
After the attacks on oil tankers in the Gulf in May, the Joint War Committee of Lloyd’s Market Association raised the security-risk status of several areas in the Persian Gulf and surrounding waterways to the highest security risk in the region since the Iraq war in 2005. The second apparent attack in June pushed tanker insurance premiums higher.

https://oilprice.com/Latest-Energy-N...ts-Higher.html

[Swordsmyth]

Rating agency Fitch downgraded Saudi Arabia's credit rating to A from A+ on Monday, citing rising geopolitical and military tensions in the Gulf following an attack on its oil facilities and a deterioration of the kingdom’s fiscal position.The Saudi finance ministry said it was disappointed by the "swift" downgrade and urged Fitch to reconsider it, arguing the move did not reflect the kingdom's response to the Sept. 14 attack or its capacity to handle adversity.
The move – which places Saudi Arabia one notch above the assessment of peer rating agency S&P Global – is a blow to the largest Arab economy as it seeks investment to diversify away from oil and prepares a potential international sale of U.S. dollar denominated Islamic bonds.

More at: https://finance.yahoo.com/news/1-fit...111723156.html

[Swordsmyth]

Increased cooperation is the best recipe for overcoming intensified uncertainties and heightened volatility on the global oil market, OPEC Secretary General Mohammad Barkindo said this week, inviting all 97 oil producing countries in the world to join the OPEC/non-OPEC alliance that has been managing oil supply in the market over the past nearly three years.
Speaking at an event in Sochi, Russia, Barkindo said that the OPEC+ alliance of OPEC and 10 non-OPEC producers led by Russia “has served the interests of producers, consumers and the global economy” over the past three years. The so-called ‘Charter of Cooperation’ of the 24 oil-producing countries could help the global oil market get through external shocks in the future, such as geopolitics, trade tensions, monetary policies, and natural disasters, according to OPEC’s head.


“Therefore, further and more intensified cooperation is the best prescription to treat volatility. For this reason, participation in the ‘Charter’ is voluntary and open to all producing countries. I would like to extend the hand of friendship to all 97 oil producing countries and invite them to join the ‘Charter of Cooperation’ as we seek to build a better world,” Barkindo said in his speech.

More at: https://oilprice.com/Energy/Energy-G...Coalition.html