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Asian warning as Saudi seeks to calm markets
Despite all of the assurances from Aramco, crude customers are feeling the knock-on effect from last week’s attacks in the kingdom
COMMENTARY
WHAT:
Aramco has enough crude to satisfy the market, but the grade
of the crude available
is now proving to be an issue as stocks of lighter crude diminish.
WHY:
Asian refiners have already been warned about potential delays
to cargoes for the next month or two and Aramco has been asking to switch in heavier grades as it struggles to fulfil orders for higher quality cargoes.
WHAT NEXT:
The supply of Arab Light and Arab Extra Light depends on repairs to facilities at Abqaiq.
ALMOST before the fires at Khurais and Abqaiq had been extinguished, Saudi Aramco sought to calm market fears during a “nothing to see here” session with the press.
While the company and the kingdom have allowed the world’s press in to show the damage caused by the mid-September attacks, the nar- rative coming out of Riyadh is that the shutting in of 5.7mn barrels per day of crude and 700,000 bpd of natural gas liquids (NGLs) was little more than a short-term inconvenience.
It is true that the kingdom has utilised its 180mn-plus barrels of oil stocks and has resumed production at mothballed fields to sof- ten the blow, but Aramco’s oft-cited theoretical spare capacity of 2mn bpd is widely believed to be overstated.
The first signs of apparent uncertainty about replacing the lost output came by way of the shut- ting of the Saudi-Bahrain A-B pipeline and a warn- ing to Asian buyers of changes to shipments.
Capacity
There is no doubting that Aramco has been ramping up production capacity and this was illustrated when it set a record by pumping just
over 11mn bpd in the fourth quarter of 2018. However, this came when Riyadh was “gunning it” and this figure is thought to include at least 1mn barrels of NGLs and condensates.
The company has long maintained that it holds 2mn bpd of spare production capacity, but independent investigations have cast doubt, with these estimating that spare capacity could range from 500,000 bpd-1.6mn bpd.
While some of this can be brought on stream quickly, as alluded to in statements by Aramco officials over the past week, around 250,000 bpd of this is tied up in a political wrangling between Saudi and Kuwait over their shared Partitioned Neutral Zone (PNZ).
New Saudi Energy Minister Abdulaziz bin Salman last week announced that more than half of the lost production had already been restored, with capacity “returning” to 11mn bpd by the end of the month and 12mn bpd by the end of November.
Saudi produced an average of 9.8mn bpd in August. If we assume that NGLs and conden- sates accounted for around 1mn bpd of this, crude production was actually 8.8mn bpd. This would suggest that if crude capacity was to reach
Image: EPA/NASA Worldview
Week 38 25•September•2019 w w w . N E W S B A S E . c o m P5