Saudi Oil Attack: Disruptions to the oil market

According to the official statement released on Saudi Aramco’s website, the attack on its facilities in Abqaiq and Khurais were “A result of Terrorist attacks with Projectiles”, which resulted in a production suspension of 5.7 million bpd of crude oil. According to the last Reuters OPEC survey, the kingdom produced 9.63 million bpd of crude oil in August. 

This results in almost 60% of the production being suspended due to the attack. According to Aramco, the Abqaiq facility is the largest crude oil stabilization plant in the world which processes more than 7 million bpd of crude. Considering the plant plays a vital role in removing the sulfur impurities and reducing the vapor pressure of the crude in order to make it safe for being transported by tankers, exports from the Kingdom’s main terminals of Ras Tanura and Juaymah could be expected to have an impact, if there is an extended delay in bringing the facility back into operation.

This is already seen in the number of ships that have lined up at the port’s waiting anchorage, which have increased from just 5 ships waiting to load on Thursday (12th Sept) as per the port line up to at least 16 VLCC’s waiting as of this morning (15th Sept 2019).

At least two empty oil product tankers diverted from Saudi port

At least two refined product tankers that were due to load at Saudi Arabia’s Jubail port in mid to late September have been diverted, data from analytics firm Vortexa showed.

The moves come after attacks on Saudi Arabia’s oil infrastructure on Saturday that cut the country’s crude output by more than half and reduced its refinery runs by an unknown amount.

Saudi Arabia is typically a net exporter of diesel but Aramco Trading Co, the trading arm of state oil producer Saudi Aramco, has been looking to buy several cargoes of the fuel.

The Polar Cod tanker changed its destination on Sunday from Jubail to the port of Ruwais in the United Arab Emirates. The tanker was originally scheduled to load 60,000 tonnes of diesel, Vortexa said, citing shipping fixtures.

The STI Spiga changed its course from Jubail to Sikka on India’s west coast, Vortexa said. It was meant to load 90,000 tonnes of diesel in Jubail.

Ruwais and Sikka are home to major diesel-exporting refineries.

Buyers of Saudi oil scramble for alternatives, U.S. exports ramp up

The oil markets were in turmoil after the weekend’s attack on Saudi facilities, as refiners in top consumer Asia looked for alternative supplies, U.S. crude producers ramped up efforts to export crude and Saudi Arabia tried to secure refined products.

Crude prices surged by nearly 20% on Monday, the biggest jump in almost 30 years, after Saturday’s attack cut output at processing facilities at Abqaiq and Khurais by a total 5.7 million barrels per day (bpd), knocking out half the kingdom’s production.

There was no indication on when output will be resumed by the world’s largest oil exporter, but two sources briefed on state-owned Saudi Aramco’s operations said a full return to normal production “may take months.”

While most countries have ample storage to meet immediate needs, companies are already planning for shipments for weeks and months into the future to make up for a shortfall in light crude and refined products, market participants said.

The lost Saudi crude oil output represents about 5% of global crude supply. Analysts from research consultancy Bernstein said Saudi oil exports are mostly geared towards China, which takes about 1.7 million bpd, or nearly 25% of Saudi exports.

Booking activity and freight rates for cargoes from the U.S. Gulf Coast rose over the weekend and on Monday, a ship broker said. U.S. physical crude along the Gulf Coast, which can be exported most easily, was in high demand, with premiums soaring to levels not seen since June for certain grades. [CRU/C]

“The export window for U.S. crude is going to be wide open,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “You are probably going to see record amounts of U.S. exports.”

Booming shale production already allowed the United States to close in on and briefly overtake Saudi Arabia as the world’s top exporter of oil and refined products in June, after U.S. crude exports surpassed 3 million bpd, the International Energy Agency (IEA) said last week.

REFINERY FEEDSTOCKS

Asian refiners, the top destination for Saudi crude, can tap strategic oil reserves if necessary to cover 30 to 220 days of oil imports depending on the country, while oil product supplies are adequate for now as new refining capacity has been added this year, traders and market participants said.

China currently has about 325 million barrels of oil in its strategic petroleum reserves, enough for about 33 days of imports, according to industry estimates.

Arab Light and Arab Extra Light crude oil grades make up about one third of China’s total Saudi oil imports, according to Seng Yick Tee, a senior director with consultancy SIA Energy.

While newer refineries in Asia are able to process heavier crude grades should Saudi Arabia cut exports of its lighter crudes, it may not be quick or cheap.

Still, refiners in China do not seem worried about security of oil supply.

A company executive from Zhejiang Petrochemical, one of China’s two new mega integrated refineries, said inventories of crude oil were “comfortable” as it gears up for full production at its new 400,000-bpd plant in east China later this year.

South Korea said it would consider releasing oil from its reserves but did not anticipate any short-term impact on securing supplies. India said it was in talks with its refiners and Aramco.

For U.S. refiners, Saudi imports have accounted for just 3% of feedstocks this year. Chevron Corp (CVX.N), Motiva, Marathon (MPC.N) and PBF process the bulk of Saudi crude refined in the United States.

SAUDI PRODUCT IMPORTS

Two traders dealing with Saudi oil said Aramco’s trading arm Aramco Trading Company is already making inquiries about importing refined products, although the volumes sought were not clear.

“They are looking (for oil products) since they are trimming run rates at some of the refineries,” a Singapore-based trader said.

Industry analyst Energy Aspects estimates that about 1 million bpd of Saudi Aramco refining operations have been curtailed, releasing medium and heavy crude oil grades for export, with the state oil company likely to buy significant quantities of gasoline, diesel and possibly fuel oil.

France’s Total SA (TOTF.PA), which jointly owns the 400,000 bpd Satorp refinery on the west coast of Saudi Arabia with Aramco, bought at least three cargoes of diesel in the European market on Monday.

Total regularly delivers several cargoes of diesel from the refinery to Europe every month. The cargoes sold at the highest premiums to benchmark European ICE diesel futures since April, according to Refinitiv Eikon data.

 

 

Refinitiv Oil Research: Incidents on Saudi oil facilities

REUTERS: Reporting by Jessica Resnick-Ault in New York and Jessica Jaganathan in SINGAPORE; Additional reporting by Florence Tan, Muyu Xu, Chen Aizhu, Shu Zhang and Koustav Samanta in SINGAPORE, Jane Chung in SEOUL, Aaron Sheldrick in TOKYO, Tom Daly in BEIJING, and Nidhi Verma and Promit Mukherjee in NEW DELHI; Ron Bousso in LONDON; Collin Eaton in Houston, and Laura Sanicola in New York; Editing b

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