Drone attacks on Saudi Aramco oil facilities cut oil production by 5.7mn bopd

Abha bulk plantThe recent drone attacks on two Saudi Aramco oil facilities have affected the production of 5.7 mmbbl of crude oil per day, Saudi Aramco said in a statement

The world’s largest oil producer stated that the emergency crews contained fires at its plants in Abqaiq and Khurais, as a result of terrorist attacks with projectiles.

The company has confirmed there was no casualty in the attack.

Amin H. Nasser, Saudi Aramco president and CEO, said, “We are gratified that there were no injuries. I want to thank all teams that responded timely to the incidents and brought the situation under control. Work is underway to restore production and a progress update will be provided in around 48 hours.”

Vima Jayabalan, Wood Mackenzie research director, said that Abqaiq and Khurais are the main processing centres for Arab extra light and Arab light crude oil in Saudi Arabia. China, South Korea, Japan and India are the biggest players in Asia, with China and Japan leading the pack at an average of 900–1,100 kilo bpd each. He noted that India could be the most vulnerable, as its reserves are the least. China has SPR (Strategic Petroleum Reserve) and commercial crude storage, while Korea and Japan have IEA reserves to fall back on.

“Collectively, Asian demand for Saudi Arabian crude is around five mmbbl per day; accounting for almost 72 per cent of Saudi Arabia’s crude exports. The impact and the next course of action will depend on the duration of the outage,” he added.

However, Bjørnar Tonhaugen, head of oil market research at Rystad Energy, remarked that the world is not even close to being able to replace more than five mmbbl per day of Saudi Arabian exports. The market’s reaction to Saudi Arabia’s importance, in the new era of US shale, will now be put to the test.

“The global flow of crude oil will not be disrupted immediately, Rystad Energy believes, due to storage capacity at the main export terminals. The longer the processing facility remains disrupted, the larger the potential impact on actual crude flows will be,” Tonhaugen revealed.

Meanwhile, Alan Gelder, Mackenzie vice-president for refining, chemicals an oil markets, said, “This attack has material implications for the oil market, as a loss of 5 million barrels per day of supplies from Saudi Arabia cannot be met for long by existing inventories and the limited spare capacity of the other OPEC+ group members. A geopolitical risk premium will return to the oil price.”

Following the attacks on oil infrastructure in Saudi Arabia, Will Scargill, managing oil and gas analyst at GlobalData, offers his view on the effect this will have on the global oil market:

“If the Saudi supply outage is sustained, we may well see a test of how well the US industry can dynamically adapt to market needs. Although the OPEC+ production cuts currently in place mean that the group has spare capacity available, it may not be enough to cover all lost output. If a large portion of the reported 5.7 mmbbl per day output loss is sustained for weeks or more, it will be a huge challenge to fill that gap.

“A period of sustained heightened prices and inventory draw-downs would likely spur US players to drill more. However, their ability to bring swing supply would be put to the test and could be limited by financing and infrastructure constraints.”

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