Page 8 - MEOG Week 37

MEOG PiPeLines & tRansPoRt MEOG
Saudi attacks to have little impact on Europe’s oil supplies
saudi aRabia
ThE drone attack on Saudi Arabia’s oil produc- tion will not have any real impact on oil supplies in Europe in the short term, which is heavily dependent on Russian crude deliveries and takes little oil from the Middle East.
Germany, the biggest economy in Europe, imports just under 35mn tonnes of oil a year (245mn barrels) from Russia, which makes up the vast majority of its oil needs.
in addition German imports approximately 10mn tonnes from Norway and 8mn tonnes from the UK and Kazakhstan each.
As a result if the attacks, the national oil com- pany Saudi Aramco announced a 50% reduction in oil production, or by 5.7mmbd, which repre- sents 5.7% of the world’s crude output and is the biggest disruption to oil production ever, accord- ing to Bloomberg.
The company also noted that it expected to recover 2mmbd by the end of September 16 – a third of the announced reduction in oil produc- tion. Saudi Aramco noted that until operations had been fully restored, the company would compensate for the crude output loss by an inventory release. The Ministry of Energy of the US declared that it was willing to help stabilise the market and exploit its oil reserves, exceeding 600mmbbl, if needed.
The price of oil initially spiked by 19% -- the largest one off gain ever – but fell back to a circa 10% gain as European markets opened.
Europe is unlikely to be affected by supply shocks if the repair of the damage done to Saudi Arabia’s production facilities, although higher prices will weight on the already slowing Euro- pean economies. Germany is particularly vul- nerable to an oil price shock as its economy is already teetering on the edge of a recession.
if there are sustained supply problems, Russia is well placed to increase production to alleviate them.
“We estimate that Russian oil companies have the capacity to increase oil production by around 250kbbl/d within a 12-month period, which is a relatively insignificant number,” VTB Capital (VTBC) said in a note.
Politically tricky balancing act
Russia was quick to condemn the attacks on Sau- di’s Abqaiq facilities and as world’s second larg- est oil producer has promised to ensure supplies
to its European customers. Despite the fraught policies since Russia annexed the Crimea in 2014, Moscow is still keen to be seen as a reliable energy partner and will use this opportunity to burnish its credentials.
As bne intelliNews reported, Russia’s is cur- rently enjoying a dramatic thaw in relations with the west as French President Emmanuel Macron and German Chancellor Angela Merkel take advantage of the change of government in Ukraine under Ukrainian president Volodymyr Zelenskiy to attempt to restart the Minsk ii peace process and bring an end to the undeclared war with Russia in the Donbas region.
But the attack has complicated the Kremlin’s position in the Middle East. Moscow has been left in an awkward position thanks to its good relations with Tehran. Putin had hoped to take up the role of “honest broker” in the region as an intermediate that can broker talks between the sunni and sufi states. however, if the attacks on Saudi’s production lead to military action, or even war, the sitting on the fence becomes more difficult.
The attacks are also an opportunity for Washington to retake the initiative in the region, where it has been outmanoeuvred by Moscow, especially in Syria.
Even the Saudis have been flirting with Mos- cow, irked as they were by the US pushing ahead with its domestic shale production that has undone the power of OPEC.
After resisting for many years, Russia has joined the OPEC cartel and voluntarily held down production to bolster prices, earning Saudi gratitude in the process.
however, the so-called OPEC+ deal that includes Russia may be off now if there is a dis- ruption to oil supplies. Russia’s leading compa- nies have buckled under and cut production to around 11mn barrels a day, but they have been lobbying hard to end the deal.
The all powerful igor Sechin, CEO of state- owned oil major Rosneft, has been especially vocal in calling for an end to the OPEC+ pro- duction caps.
if global supplies are now interrupted for an extended period that would allow producers like Rosneft to increase production and analysts say it would be hard to get them to cut production again once things return to normal.™
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w w w . N E W S B A S E . c o m Week 37 17•September•2019