Saudi oil output bounces back after attacks

Saudi Arabia’s oil production has rebounded to more than 8m barrels a day following the attacks on energy infrastructure earlier this month, with the faster than expected recovery helping to push the oil price down below $62 on Wednesday.

The rise, shared with the Financial Times by two people briefed on the situation and corroborated by satellite heat maps of output from the fields, marks the restoration or substitution of more than three-quarters of lost production. It still leaves the kingdom’s output at least 1.5m barrels a day below the level it was before the attacks.

The recovery is quicker than analysts had been anticipating, with state oil company Saudi Aramco acting to fire up spare capacity at offshore fields and bring production back online, while restoring processing capacity at one of the damaged facilities.

Officials in the kingdom, which is trying to arrange the stock market listing of a stake in Saudi Aramco, have told analysts that total production capacity, a term that includes oil being extracted from fields plus spare capacity not being utilised, could soon hit 11.3m b/d — just 700,000 b/d below where it was before the attacks. There remains some scepticism, however, over whether this includes the ability to process the crude to a level that makes it viable for export.

Full repairs to the Abqaiq facility and Khurais field, which were hit by missile and drone strikes that western powers have said originated in Iran, are still expected to take months to fully complete — with specialist equipment required to be custom made to carry out the fixes. Iran has denied involvement.

12m

the number of barrels a day in crude oil processed by Saudi Arabia before the attacks

But the quick return of production is still helping to calm oil markets, after prices jumped as much as 20 per cent in the immediate aftermath of the strikes. Brent crude, the international benchmark, has fallen back to below $62 a barrel from a high above $71 a barrel on Monday last week, and is roughly where it was trading before the attacks occurred. Concerns about the US-China trade war have also weighed on oil prices, with signs that demand for crude has weakened.

“They have been able to restore some of the capacity, but they are not yet able to restore everything,” said Per Magnus Nysveen at Rystad Energy, a consultancy. He said it was “astonishing” how little the disruption had affected markets, adding that the depletion of oil in storage tanks could push prices higher.

Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, vowed after the attacks that full output would be restored within weeks. The company is keen to emphasise its resilience, and has said processing at Abqaiq is recovering partly due to redundancy built into the facility.

Genscape, which provides oil traders and other clients with data sourced from satellite monitoring, told the FT it had detected a steady increase in production since September 16, two days after the missile strikes had temporarily slashed output by half.

Heatmapping used by the company to monitor Saudi Arabia’s oil facilities indicates production has risen at onshore and offshore fields that are not as reliant on the Abqaiq processing facility, which is used to prep the majority of Saudi Arabia’s crude for export.

Genscape said it had detected production at the Khurais field getting back to about 725,000 b/d, roughly 50 per cent of the field’s maximum capacity. One person close to Aramco said production was even higher.

Total production, Genscape said, was slightly above 8m b/d as of the start of this week, a number also given to the FT by two people briefed by officials in the kingdom.

“We can detect that Saudi Arabia’s output has been steadily rising,” said Genscape global director Devin Geoghegan, saying that some of the recovery came from fields affected by the strikes while more than 500,000 b/d came from increasing production at other sites.

Genscape said the Shaybah oilfield in the east of the country had continued to produce at full volume, near 1m b/d, since the attacks. One of the people briefed by the kingdom said Shaybah’s large natural gas liquid processing facility, which was built earlier this decade, was helping to prepare crude for market.

The same person said some of the total 8m b/d production might not be fully available to the market, however, with some raw crude likely to be held in separate storage to be processed at a later date.

To keep oil markets well supplied while the kingdom’s production is depressed, Saudi Aramco has scrambled to rejig its system. The company is running its domestic refineries at approximately 1m b/d below their normal capacity to free up crude for export.

Saudi Aramco’s trading arm has also been in the market buying up additional cargoes of gasoline to replace the shortfall caused by squeezing its own refining system, according to traders outside the company. It has also looked to buy crude from other countries for Saudi Arabia’s own refineries.

The company has also been pulling barrels from storage to keep its exports going at as close to a normal level as possible.

Aramco did not respond to a request for comment.

Orbital Insight, a company that uses satellite imagery and artificial intelligence to measure the amount of crude held in storage tanks, said it had seen an average of 1.3m b/d of crude being withdrawn from Saudi storage in the past seven days, or more than 10 per cent of the country’s total inventories.

Kpler, an oil analytics company, said that loadings from Saudi Arabia’s ports had, however, fallen since the attacks, declining to about 6m barrels a day. They have averaged near 7m b/d for much of 2019.

Data compiled by the FT show that the kingdom’s processing facilities to stabilise oil, which is necessary to remove sulphur from sour crude oil before it is exported, could have been as much as 12m b/d before the attacks.

Saudi Aramco can produce about 2.6m b/d of sweet crude from its Safaniya, Shaybah and Zuluf oilfields, which does not need stabilising at processing facilities, according to research from the Harvard Kennedy School.

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https://www.ft.com/content/636cba08-df8e-11e9-b112-9624ec9edc59

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