Attacks on Saudi oil make waivers on Iran necessary: Experts

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Sat Sep 14, 2019 08:58PM

Smoke billows from an Aramco oil facility in Abqaiq about 60km (37 miles) southwest of Dhahran in Saudi Arabia’s Eastern Province on September 14, 2019. (AFP photo)

Experts say critical oil supplies lost due to Yemeni attacks on Saudi Arabia’s production plants can only be compensated if the United States eases its sanctions on sale of crude by Iran.

Sandy Fielden, an analyst at Morningstar, a global financial services firm based in the US, said on Saturday that the current oil stocks in Saudi Arabia, the biggest oil exporter in the world, would not suffice to compensate for a loss of around 5 million barrels per day (bpd) that could be caused by attacks earlier in the day targeting the kingdom’s vital oil facilities located east of the country.

The attacks “resulted in a temporary suspension of production at Abqaiq and Khurais plants,” Prince Abdulaziz bin Salman, the energy minister said in a statement carried by the official Saudi Press Agency. It led to the interruption of an estimated 5.7 million barrels of crude, or about 50 percent of total production, he added.

Fielden said the disruptions could cause a real jump in the global oil prices, adding that the US, a main player in the oil market and an ally of the Saudis, would have no option but to allow Iran to resume its crude exports after months of a halt that has been caused by Washington’s unilateral bans.

“By all accounts the Iranians have tankers full of storage ready to go,” he said, adding, “The obvious short-term fix would be waivers on Iran sanctions.”

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Yemen’s ruling Houthi Ansarullah movement said on Saturday that its drones had successfully attacked two oil plants in Abqaiq, the heart of Saudi Arabia’s oil industry, in the kingdom’s Eastern Province.

The Houthis said the attacks were a firm response to Saudi Arabia’s relentless bombardment of Yemen, where tens of thousands of civilians have been killed since Riyadh launched its illegal military campaign four years ago.

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James Krane, Middle East energy specialist at Rice University’s Baker Institute, suggested that supplies from a country like Iran would be the best option to replace the lost Saudi production as most of the Kingdom’s exports normally go to countries in Asia that are closer to Iran than any other major oil producer.

“For the United States, the main threat is in the price of oil,” said Krane, adding, “Asian countries are more at immediate risk because they are the big importers from Saudi Arabia, with 80% of Saudi exports going to East Asia.”

Riyadh defenseless against Yemeni strikes

Analysts said Yemeni attacks on Saudi oil installations showed that Riyadh, which pumps just below 10 million bpd of oil into the global market, is effectively defenseless in the face of strikes from its impoverished neighbor.

Fielden said Washington would also find it impossible to try to solve the crisis on its own by sending tankers full of oil to Saudi customers in East Asia.

“It takes 19-20 days to ship Ras Tanura (Saudi) to Singapore, but 54 days from Houston to Singapore. So US ‘relief’ will take time,” he said.

However, US officials said right after the attack that they would try to ensure a smooth supply of oil to the global markets despite the attacks in Abqaiq.

White House spokesman Judd Deere said in a statement that Washington was committed to well-supplied oil markets while adding that US President Donald Trump had held a phone conversation with Saudi Crown Prince Mohammed bin Salman following the Saturday attacks.

Oil could rise $10 per barrel

Oil analysts and traders say that the impact of the attack on crude prices could be double digit and the commodity’s price could jump as much as $10 per barrel.

“This is a big deal,” said Andrew Lipow, president of Lipow Oil Associates. “Fearing the worst, I expect that the market will open up $5 to $10 per barrel on Sunday evening. This is 12 to 25 cents per gallon for gasoline.”

Kevin Book, the head of research at Clearview Energy, said the price impact will depend on the repair time which can take weeks to months. “Our baseline assumptions, which incorporate public assessments of strategic petroleum reserve capacity and OPEC spare capacity, imply a net shortfall of ~1 MM bbl/d, or at least a ~$6/bbl premium to the ~$60 Brent close… Exclusive of this supply offset, and assuming a three-week shutdown, our models imply ~$10/bbl of upside.”

US West Texas Intermediate (WTI) crude futures settled 0.4% lower at $54.85 on Friday, and Brent crude futures traded 0.2% lower at $60.25 per barrel.

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IEA: No real concerns

The International Energy Agency (IEA) also said that in the short term was there were no real concerns about supplies to the markets.

“For now, markets are well supplied with ample commercial stocks,” it said, adding, “The IEA is monitoring the situation in Saudi Arabia closely. We are in contact with Saudi authorities as well as major producer and consumer nations.”

The United Arab Emirates, a close ally of Saudi Arabia and a major oil producer, said it would support measures adopted by the kingdom to safeguard its security following Saturday attacks.

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