September 18, 2019

Upstream Extra! Drone Attack in Saudi Arabia Coincides with a Sweetening Global Crude Market

The drone attack on Saudi oil facilities last weekend knocked approximately 5% of global oil supply (5.7 million b/d) offline. According to the Saudi Energy Minister, Saudi Aramco has already restored 50% of lost volumes as of Tuesday (9/17/2019), and full recovery is expected by the end of September. Stratas sees no severe long term impact on global oil markets thanks to plenty of global oil inventory and prompt damage control. However, this incident is projected to shift the global crude mix to a slightly sweeter mix amid the tightening sour supply. 

Following the attack, Saudi Arabia announced plans to tap its oil stockpiles within the kingdom as well as in other strategic locations such as Netherlands, Egypt, and Japan to compensate for the short fall. With its current storage level, the kingdom is capable of maintaining normal export levels for approximately 30 days even in the event that the 5.7 million b/d takes longer to be restored. Additionally, U.S. President Donald Trump authorized to release U.S. Strategic Petroleum Reserves (SPR) to stabilize the oil market if needed. So far, the OPEC+ members have no plans to ramp up production. Should restoration take longer, the OPEC+ can tap in to their spare capacities and add around 900,000 b/d to 1.3 million b/d to the market. 

Saudi Arabia’s Asian customers will feel the brunt of the impact as they account for between 75%-80% of Saudi oil exports. Major oil buyers such as China, South Korea, Japan, and India all have decent levels of crude inventories to cushion supply shortages. As of now, most of these oil importing countries are taking a wait and see strategy as they expect a quick restoration by Saudi Aramco. The only country that is currently considering to draw its SPR is South Korea.

The majority of Saudi crude output is medium sour oil (59% in 2018) and light sour oil (37% in 2018). The damaged Abqaiq plant and Khurais oil field produce Arab Light Crude (33° API, 1.77% Sulfur / Medium Sour oil) as well as Arab Extra Light Crude (40° API, 1.09% Sulfur / Light Sour oil).

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