The oil market is still under the grip of fear

07:42 17/09/2019

James Thornhill and Saket Sundria

Oil markets are struggling
with uncertainty about the time it will take in Saudi Arabia to restore production
after the devastating attacks that destroyed 5% of the world's crude supply.

State oil producer Saudi Aramco becomes less optimistic than
there will be a quick recovery after the strikes that have reduced the nation's production
in half, investors seek clarification on the seriousness of the situation.
Initially, it was said that large volumes could begin to circulate in the coming months.
several days, but Saudi officials later told a foreign diplomat that they were facing a "severe"
disturbance measured in weeks and months.

"There has been a real change in
understand how fast this lost production will come back online ",
Ann Berry, a partner at Cornell Capital LLC, said in an interview with Bloomberg
TV. "The initial reaction was that 100% would come back very quickly, now the
the outlook will be much more conservative than that. "

The attacks, which damaged one of the Saudi's flagship fields and a key processing complex, triggered one of the wildest exchanges in the oil markets: Brent futures rose 19% in a matter of seconds at the opening on Monday before publishing their report. the biggest advance of the day.

On Tuesday, futures trading between Brent and West Texas Intermediate both fell slightly.

State-owned Saudi Aramco lost about 5.7 million barrels a day on Saturday after 10 unmanned aerial vehicles hit the Abqaiq plant and the kingdom's second largest oil field in Khurais. According to Citigroup, a total recovery might not occur before the end of the year, keeping offline 1 to 2.5 million barrels a day. Saudi crude stocks are in a "more critical situation" than previously thought, the bank said.

While Aramco is still assessing the state of Abqaiq's plant and the extent of repairs, it currently estimates that less than half of the plant's capacity can be restored quickly, said people familiar with the subject, who asked not to be identified, because the information is unreliable. t public.

Saudi Aramco operates unused offshore oil fields – part of its spare capacity reserve – to replace some of the lost production, said one person. Aramco's customers are also supplied with inventory, although some buyers are invited to accept different grades of crude oil. According to the consultant Rystad Energy A / S, the kingdom has enough domestic stocks to cover about 26 days of export.

Customers are also preparing to exploit strategic reserves if necessary. President Donald Trump has authorized the release of oil from the US strategic oil reserve, while the International Energy Agency, which is helping to coordinate the emergency fuel stocks of industrialized nations, said monitor the situation.

The Japanese government said on Tuesday that it was ready to cooperate with the IEA to release reservations if necessary, following a similar statement from South Korea.

The disruption exceeds the loss of Kuwaiti and Iraqi oil production in August 1990, when Saddam Hussein invaded his neighbor. It also exceeds the loss of Iranian oil production in 1979 during the Islamic Revolution, according to the IEA.

The market was relatively quiet Tuesday after yesterday's fireworks, when Brent jumped close to $ 12 a barrel, before settling for just over $ 69, the largest gain in a year. day since the conclusion of the contract in 1988.

Tuesday morning, Brent was trading at $ 68.29 a barrel.

If Abqaiq "takes months to come back online, we could see Brent grow in the range of $ 70 to $ 80 a barrel," said Vivek Dhar, an analyst at the Commonwealth Bank of Australia. "A retaliatory attack against Iran could see oil prices rise even higher."