Aramco Less Optimistic on Pace of Oil Output Recovery
May take longer than expected to resume operations at Abqaiq.
(Bloomberg) -- Saudi Aramco officials are growing less optimistic that there will be a rapid recovery in oil production after the attack on the giant Abqaiq processing plant, a person with knowledge of the matter said.
All eyes are on how fast the kingdom can recover from the weekend’s devastating strike, which knocked out roughly 5% of global supply and triggered a record surge in oil prices. Initially, it was said that significant volumes of crude could being to flow again within days, but it may now take longer than previously thought to resume operations at the plant, the person said, asking not be named before an official announcement. The company is scheduled to provide an update later today.
The loss of Abqaiq, which handles 5.7 million barrels of oil a day, or about half of Saudi production, is the single worst sudden disruption to the oil market. Saudi Aramco is firing up idle offshore oil fields -- part of their cushion of spare capacity -- to replace some of the lost production, the person said. Aramco customers are being supplied using stockpiles, though some buyers are being asked to accept different grades of crude oil.
In an extraordinary start to trading on Monday, London’s Brent futures leaped almost $12 in the seconds after the open, the most in dollar terms since their launch in 1988. Prices have since pulled back about half of that initial gain of almost 20%, trading at just over $67 a barrel in the U.S. morning , but are still heading for the biggest advance since 2008.
In addition to the immediate loss of supply, the attack raised the specter of U.S. retaliation against Iran, which it blamed for the strike. While Iran-backed Houthi rebels in Yemen claimed responsibility for the assault, which they said was carried out by a swarm of 10 drones, several administration officials Sunday said they had substantial evidence Iran was directly responsible.
President Donald Trump promised on Monday to help allies following attacks on major Saudi Arabian oil facilities, even though he said the U.S. is no longer directly reliant on Middle Eastern oil and gas and has few tankers there.
A Saudi military official said Monday that preliminary findings show that Iranian weapons were used in the attacks but stopped short of directly blaming the Islamic Republic for the strikes.
Responsible for almost a 10th of global crude output, Saudi Arabia has been under siege this year -- targeted by air, sea and land -- as tensions with Iran flare. The Houthi rebels said on Monday that oil installations in the kingdom will remain among their targets. The Iranian-backed rebel group, cited by the Houthi’s television station, said its weapons can reach anywhere in the country.
“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure -- that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Citigroup Inc.’s Ed Morse wrote in a research note.
Trump authorized the release of oil from the U.S. Strategic Petroleum Reserve, while the International Energy Agency, which helps coordinate industrialized countries’ emergency fuel stockpiles, said it was monitoring the situation.
The Organization of Petroleum Exporting Countries is in regular contact with the Saudi authorities, who have risen to the challenge by keeping oil flowing, the group’s Secretary-General Mohammad Barkindo said in a Bloomberg TV interview. It’s premature to talk about reversing the oil-production cuts implemented by OPEC and its allies, he said.
Even if OPEC+ did decide to roll back their cuts, they would only be able to add about 900,000 barrels a day to the market, just a fraction of the Saudi losses, according to Bloomberg calculations based on IEA data.
--With assistance from Christopher Sell.
To contact the reporters on this story: Will Kennedy in London at wkennedy3@bloomberg.net;Javier Blas in London at jblas3@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net, James Herron
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