Rystad warns market to remain cautious about Saudi output recovery guidance

Following a drone attack on the world’s largest oil processing facility owned by state-run Saudi Aramco, Rystad Energy, an energy intelligence group, has warned the market not to get too excited and remain cautious about the oil giant’s promise to quickly return to pre-attack production levels. 

Illustration. Source: Pixabay

The attack on Saudi Aramco’s Abqaiq and Khurais facilities in Saudi Arabia, which happened last Saturday, resulted in production suspension of 5.7 million barrels of crude oil per day or about 5% of the world’s crude output.

The attack sent the oil prices soaring in early trade on Monday only to ease off later during the day following the U.S. President Trump’s pledge to release the U.S. emergency supplies.

Following the attack, Rystad Energy said that its impact on the market would depend on duration of the outage at the plant and that the rise in oil price was short-lived.

Saudi Aramco held the long-awaited press conference regarding the attack on Tuesday, September 17 and pledged to return to full production capacity by the end of the month.

It was disclosed that production at Khurais resumed 24 hours after the attack and production at Abqaiq was 2 million barrels per day.

 

‘Risk of slower restart’

 

Commenting on Saudi Aramco’s promise of a swift restart of oil production, Rystad Energy chief oil market analyst, Bjørnar Tonhaugen, said on Wednesday: “Don’t get too excited. There is clear risk of a slower restart of Saudi Arabian oil production despite the optimistic guidance by Saudi Aramco.”

The national oil company Saudi Aramco reassured markets at its highly-anticipated press conference when it announced that around 40% of the 5.7 million barrels per day (bpd) shut-in oil production has now been restored after Saturday’s attack.

Tonhaugen said it would be prudent to remain cautious about the guidance. Rystad Energy estimates that as much as 1.6 million bpd of Arab Light and 0.35 million bpd of Arab Extra Light production will remain shut-in on average for the months of September and October, with full restoration of pre-attack processing capacity only returning as we approach the end of the year.

“In our view, there is a clear risk of a slower resumption towards full capacity,” Tonhaugen added.

“Repairs to the damaged spheroids and stabilization towers involve, to our understanding, access to expertise and spare parts which would take time to procure. Unless repairs happen much quicker than we expect, we estimate that the Abqaiq processing facility will only reach 90% capacity by mid- November. The outage would then be reduced to 0.5 million bpd for the month of November at 5.2 million bpd production. For now, we expect production to remain slightly below full capacity for December.”

Rystad Energy has developed two production ramp-up scenarios for Saudi Arabia based on the Kingdom’s current production, spare capacity, and plans by Saudi Aramco to restart production.

In the “slow restart” case, the processing facility will reach only 45% of capacity by the end of September (versus 40% currently) and 65% by the end of October.

In the “quick restart” case, the processing facility reaches 65% capacity by the end of September and 100% by the end of October.

“Markets are breathing a ‘sigh of relief’ today, which is also reflected in Brent futures sliding to sub $64 per barrel. But we caution traders about becoming too sanguine,” Tonhaugen said.

Rystad Energy estimates that Saudi Arabia has spare crude production capacity to the tune of 1.4 million bpd. However, much of this capacity is concentrated in the Ghawar and other onshore fields which feed into the damaged Abqaiq processing facility. Several other onshore fields are likely already operating at maximum capacity, Rystad said.

“In other words: There’s a limit to the amount of lost production that Aramco can compensate for,” said Tonhaugen.


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