Saudi Drone Attack: Aramco Assures No Reduction In Oil Supply To India
The Saudi Arabian Oil Co. has assured no reduction in oil supply to India due to the drone attack at one of its oilfields, the oil ministry said on Monday.
Saudi Arabia’s oil production was cut by half after a swarm of explosive drones struck at the heart of the kingdom’s energy industry and set the world’s biggest crude oil processing plant ablaze—an attack blamed on Iran by the top U.S. diplomat.
Iran-backed Houthi rebels in Yemen, who’ve launched several drone attacks on Saudi targets in the past, claimed responsibility for the assault on Saudi Aramco’s Abqaiq plant.
"Yesterday (Sept. 15), Saudi Aramco officials informed the Indian refiners that there would be no shortage of supplies to them. Ministry of Petroleum and Natural Gas is closely monitoring the situation in consultation with Indian refiners and Saudi Aramco," the oil ministry said in a statement.
Officials at state-owned oil refiners said Saudi Aramco has informed that there would not be any major disruption but has sought flexibility for switching to different grades for continuing supplies.
India imports 83 percent of its oil needs. Saudi Arabia is its second-biggest supplier after Iraq. It sold 40.33 million tonnes of crude oil to India in 2018-19 fiscal, when the country had imported 207.3 million tonnes of oil.
Oil prices surged the most on record on Monday, with Brent crude rising by as much as 19.5 percent to $71.95 per barrel—the biggest gain in dollar terms since futures started trading in 1988.
Spike in crude oil prices, even if temporary, will be negative for downstream firms such as Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. and positive for upstream firms like GAIL (India) Ltd.
"This drone 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+. A geopolitical risk premium will return to the oil price,” said Alan Gelder, vice president (refining, chemicals and oil markets) at Wood Mackenzie, an energy consultancy.
Kotak Institutional Equities said the largest-ever disruption of crude oil production in Saudi Arabia may keep oil prices elevated in the near term.
"Global oil supplies may be adequately met through large inventories and strategic reserves; however, moderation in oil prices will depend on full restoration of Saudi's production, which may at least take a few weeks," the brokerage said, adding that any further escalation of geopolitical tensions in the Middle East may add to the woes.
Crude oil supplies from Iran and Venezuela have already been curtailed significantly amid sanctions from the U.S., it added.