Page 6 - NorthAmOil Week 37

NorthAmOil COMMENTARY NorthAmOil
Trump considers SPR release amid fallout from Saudi attack
The US is considering releasing crude from its Strategic Petroleum Reserve after an attack on oilfield facilities in Saudi Arabia took half the kingdom’s production offline, writes Anna Kachkova
GLOBAL
WHAT:
The US is considering releasing crude from its SPR onto the global market.
WHY:
An attack on Saudi oilfield facilities has knocked out 5.7mn barrels of supply.
WHAT NEXT:
Shale drillers are unlikely to ramp up drilling as
a result of the Saudi outage.
US President Donald Trump has announced that he has authorised a release of oil from the country’s Strategic Petroleum Reserve (SPR), if it is needed. This came after an attack on oilfield facilities in Saudi Arabia knocked out 5.7mn barrels per day (bpd) of production, equivalent to about half of the kingdom’s output and 5% of global supply. However, Trump subsequently said the US was still weighing up whether a release was indeed needed, and suggested that other countries, including OPEC members, could also ramp up output to offset lost Saudi production.
In a pair of tweets on September 15, Trump said the amount of oil that could be released was yet to be determined. He added that he had instructed the relevant regulatory agencies to expedite the approvals of new oil pipelines in Texas and elsewhere that are currently under review. However, such orders are unlikely to have much impact, given that his government has already prioritised expediting pipeline approvals at the federal level. Significant new takeaway capacity out of the Permian Basin is coming online currently, but many drillers in the region are still exercising fiscal restraint, leading to questions over how much additional capacity will be needed in the coming years. In addition, while adding to longer-term flexibility of supply, approving new US oil pipeline capac- ity does nothing to address global outages in the immediate term.
Trump appeared to backtrack somewhat from his tweets about the SPR the following day, saying that a release from the reserve was still possible, but suggesting that other countries could also “be a little bit more generous” with their oil production.
The attack – thought to have been carried out by drones – led to a spike in oil prices, with Brent crude rising 15% to over $69 per barrel on Sep- tember 16. This marked the largest gain recorded in over 30 years. But speaking at the White House before a bilateral meeting with Bahrain’s Crown Prince Salman bin Hamad al-Khalifa, Trump said oil prices had not risen “very much” given
the circumstances. “It went up five dollars, and thatisnotaproblem,”hesaid,thoughbothBrent and New York Mercantile Exchange (NYMEX) crude futures actually rose by more than $8 per barrel, before retreating slightly.
Nonetheless, even after the largest oil market disruption in history, crude prices remain lower than they were earlier this year, and significantly below highs reached in 2018. This illustrates how oversupply – including from US shale – contin- ues to weigh on the market.
Approach with caution
The Saudi attacks knocked out oil-processing facilities and production at the Khurais oilfield, which produces a light crude similar to tight oil from US shale formations. This has led to spec- ulation that shale producers are well-placed to benefit from the outage, especially as they can bring new supply online relatively quickly.
While it could still take 90-180 days to drill,
complete and start up new wells, some hope
that a boost in oil prices could lead to a surge
in drilled but uncompleted (DUC) wells being
brought online. Estimates of the DUC count in Even after the the Permian vary, with the US Energy Informa-
tion Administration (EIA) estimating that there
are over 3,800, but noting that its methodology
and assumptions may differ from other sources.
Indeed, thanks to a time lag between comple-
tions being carried out and reported, others put
the Permian DUC count at around 1,000. But prices remain while this could account for a significant boost
in supply, a lack of infrastructure for sending this oil to global markets will act as a brake on output growth in the basin.
Even with new pipeline capacity starting up, the US Gulf Coast does not yet have sufficient export infrastructure to accommodate a major surge in oil. While operators are racing to build new crude export terminals, particularly around the Corpus Christi area, this capacity is years away from starting up. Thus shale producers are not best placed to meet any uptick in Asian demand that may result from the Saudi outage. Nor are they particularly willing to ramp up
largest oil market disruption in history, crude
lower than they were earlier this year.
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