Seemorerocks: Western financial media on Saudi oil attack

Sunday, 15 September 2019

Western financial media on Saudi oil attack

Saudi Oil Attack: This Is the

Big One

The technological sophistication and audacity of Saturday’s attack will linger over the energy market

By Spencer Jakab

Wall Street Journal,

14 September,2019

Saturday’s attack on a critical Saudi oil facility will almost certainly rock the world energy market in the short term, but it also carries disturbing long-term implications.

Ever since the dual 1970s oil crises, energy security officials have fretted about a deliberate strike on one of the critical choke points of energy production and transport. Sea lanes such as the Strait of Hormuz usually feature in such speculation. The facility in question at Abqaiq is perhaps more critical and vulnerable. The Wall Street Journal reported that five million barrels a day of output, or some 5% of world supply, would be taken offline as a result.

To illustrate the importance of Abqaiq in the oil market’s consciousness, an unsuccessful terrorist attack in 2006 using explosive-laden vehicles sent oil prices more than $2.00 a barrel higher. Saudi Arabia is known to spend billions of dollars annually protecting ports, pipelines and processing facilities, and it is the only major oil producer to maintain some spare output. Yet the nature of the attack, which used drones launched by Iranian-supported Houthi fighters from neighboring Yemen, shows that protecting such facilities may be far more difficult today.

There are countries that even today see their output ebb and flow as a result of militant activity, most notably Nigeria and Libya. Others, such as Venezuela, are in chronic decline due to political turmoil. Such news affects the oil price at the margin but is hardly shocking.

Deliberate attacks by actual military forces have been far rarer, with the exception of the 1980s “Tanker War” involving Iraq, Iran and the vessels of other regional producers such as Kuwait. When Saddam Hussein’s Iraqi forces invaded Kuwait in 1990, removing its production from the market and putting Saudi Arabia’s massive crude output under threat, prices more than doubled over two months.

Yet Saturday’s attack could be more significant than that. Technology from drones to cyberattacks are available to groups like the Houthis, possibly with support from Saudi Arabia’s regional rival Iran. That major energy producer, facing sanctions but still shipping some oil, has both a political and financial incentive to weaken Saudi Arabia. The fact that the actions ostensibly were taken by a nonstate actor, though, limits the response that the U.S. or Saudi Arabia can take. Attempting to further punish Iran is a double-edged sword, given that pinching its main source of revenue, also oil, would further inflame prices.

While the outage may not last long given redundancies in Saudi oil infrastructure, the attack may build in a premium to oil prices that has long been absent due to complacency. Indeed, traders may now need to factor in new risks that threaten to take not hundreds of thousands but millions of barrels off the market at a time. U.S. shale production may have upended the world energy market with nimble output, but the market’s reaction time is several months, not days or weeks, and nowhere near enough to replace several million barrels.

After the smoke clears and markets calm down, the technological sophistication and audacity of Saturday’s attack will linger over the energy market

Attack on Saudi Oil Plant Is What Everyone Feared: Oil Strategy

Abqaiq facility processes half Saudi Arabia’s oil production
Expect a price spike and releases from emergency stockpiles

By Julian Lee

Bloomberg,

14 September,2019

Middle East geopolitics have come back with a vengeance to hit the oil market. What everybody feared has happened. An attack has penetrated the defenses of Saudi Arabia’s massive Abqaiq oil processing facility, the heart of the kingdom’s oil production and export infrastructure, causing an unknown amount of damage. Crude prices will react and emergency stockpiles will be tapped.

Fires at the plant were brought under control within hours, but the flow of crude from Saudi Arabia, the world’s biggest exporter, will almost certainly be affected, although we don’t yet know by how much or for how long. Traders who have shrugged off tensions in the Middle East for months will respond to this attack when markets open on Monday.

The height of the price spike will depend on how much we know about the extent of the damage and how long it will take to repair. An absence of information will lead traders to assume the worst.

The Abqaiq crude processing plant is the single most important facility in the Saudi oil sector. In 2018 it processed about half of the kingdom’s crude oil production, according to a prospectus published in May for the state oil company’s first international bond. That’s roughly 5 million barrels a day, or one in every 20 barrels of oil used worldwide.

Abqaiq is more important to the Saudi oil sector than the kingdom’s Persian Gulf export terminals at Ras Tanura and Ju’aymah, or the Strait of Hormuz that links the Gulf to the Indian Ocean and the high seas. Crude can be diverted away from the Persian Gulf and Hormuz by pumping it across the country to the Red Sea through the East-West oil pipeline. But it cannot bypass Abqaiq. The East-West pipeline starts at Abqaiq and output from the giant Ghawar, Shaybah and Khurais fields is all processed there, so an attack on the facility will impact crude flows to export terminals on both coasts.

The latest attack comes just months after drones, allegedly launched from Iraq by Yemen’s Houthi rebels, targeted pumping stations on the oil pipeline. The damage caused by that earlier attack was minimal, but highlighted the vulnerability of Saudi Arabia’s oil infrastructure, even when located hundreds of miles from the country’s borders.

So what happens now?

Saudi Arabia will probably seek to maintain export levels as much as possible by supplying customers from stockpiles. It holds crude in storage tanks in the kingdom, as well as at sites in Egypt, Japan and the Netherlands. But it has been running its crude hoard down since the beginning of 2016 and it is now back at levels not seen since 2008, according to data from the Joint Organisations Data Initiative. That means the kingdom has much less to draw on than it did three years ago.

The attack will also test stockpiles in oil-consuming countries. Members of the International Energy Agency are required to hold 90 days’ worth of oil imports in emergency stocks and those will be pressed into service if the outage at Abqaiq is prolonged. Non-member countries like China and India have also been building up their own emergency reserves. Those, too, will be pressed into service.

Neighboring countries who, just days ago, were being exhorted to stick to output quotas agreed in December will now pump as much as they can to make up for any losses from Saudi Arabia. The United Arab Emirates, Kuwait and Iraq will all boost output as much as they are able. But the one country with lots of spare capacity, Iran, won’t see any easing of the restrictions placed on its oil sales by the U.S. Quite the opposite. Its support for the Houthi rebels in Yemen, who have claimed responsibility for the attack on Abqaiq, will ensure that any easing of the pressure being exerted on it remains a distant prospect.

From Arab media