The largest oil disruption in the history boiled the oil prices at one point in time 20% yesterday before finally it settled with a massive gain of 15%, never seen in almost 3 decades.
Saudi Arabia lost 5.7mbpd or half of the country’s production after Abqaiq oil facilities were attacked by the drone. The disruption was larger than was lost during the Iranian Revolution in 1979.
The early assessment revealed that attack might have done from a group of drones but recent reports suggested the possible use of cruise missiles. The biggest question is how Saudi and the U.S. government will react.
For the oil market, Abqaiq is one of the most valuable areas on earth. Extensive damage to the facility with unique equipment will take weeks or months to repair. Such extended outages would spark the prices in near-term as oil market dynamics had turned to undersupplied from oversupplied overnight.
Houthis in Yemen claimed responsibility but the US government blamed Iran for this attack. The US said attack likely came from the north, that would leave Iraq, Iran and Persi Gulf as the source of the attack, not Yemen. Iraq and Iran both have dismissed their role in this attack.
Saudi Arabia’s inventories are sufficed to meet its production suspension of 5.7mbpd for almost 28-30 days.
To calm down the heating situation, US President authorized the release of oil from the U.S. Strategic Petroleum Reserve (SPR).
Saudi Arabia believes that less than half of the capacity at the Abqaiq facility can be restored quickly.
To compensate, Aramco is bringing back online previously closed oilfields, and it is drawing on its oil reserves. Aramco has also assured its major Asian customers that there won’t be a supply halt- although lighter grades might be replaced with a heavier one.
Russian Energy Minister Alexander Novak said that Global commercial inventories of oil will be enough to cover a potential supply loss on the oil markets following the attacks in Saudi.
Energy Minister of UAE said that OPEC has sufficient spare capacity to respond to supply shortages.
Column by Tarun Satsangi for TarunSatsangi.com