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Brent Oil Falls Below $60 After Saudis Restore Production

Despite the worst attack on its infrastructure in the oil giant's 80-year-plus history, Saudi state-owned oil giant Aramco has succeeded in making all of its shipments in the month of September, says Ibrahim Al-Buainain, the CEO of Aramco's trading arm.

Moreover, the oil giant has also managed to restore its oil-production capacity to pre-attack levels, meeting an accelerated two-week timeline announced by the firm earlier this month.

Saudi oil output was cut in half by an attack on Aramco facilities, an attack that was allegedly orchestrated by Saudi Arabia's arch-rival Iran (though Yemen's Iran-backed Houthi rebels initially took credit for it).

In the wake of the attack, oil prices soared, as the kingdom warned that the equivalent of 5.5% of global production had been temporarily taken offline.

Initially, Aramco warned that the damage could take months to repair. However, the Saudis adjusted that prediction just days after the attacks as repairs reportedly progressed much more quickly than Aramco had initially anticipated, according to a senior executive.

And oil prices have erased all of the spike gains...

Still, the decline in Saudi output definitely had an impact on broader OPEC production levels, which tumbled to the lowest since 2004 in September. Related: A Fracking Ban Will Never Happen

The news comes as global oil prices have erased nearly all of their post-attack gains.

So, how did Aramco make all of its shipments?

According to a Reuters report from last week, Aramco opted to buy oil in larger quantities than it typically would from some of its neighbors to meet the Saudi oil giant's supply obligations to foreign refineries.

To accomplish this, Aramco's trading arm bought crude from the UAE and Kuwait to ship to refineries in several countries, including neighboring Bahrain, and as a as well as Malaysia and South Korea, Reuters' sources said.

On Sept. 14, a fusillade of drones and low-flying cruise missiles penetrated Saudi air defenses and destroyed parts of two facilities that mainly processed Saudi light crude at Aramco's Abqaiq and Khurais facilities in eastern Saudi Arabia. 

Never-before-seen footage of the attack emerged Sunday night after it aired on CBS's '60 Minutes', which featured an interview with Saudi Crown Prince Mohammad bin Salman.

The attacks initially knocked out 5.7 million b/d of production, more than half of the output of Saudi Arabia, the world's largest exporter. Production has been restored to 9.9 million b/d, the company said on Monday, bringing it back to pre-attack levels.

Per Reuters, even before the attacks, Aramco would buy and trade third-party crude on the market, sometimes swapping it for other energy products. But the reduced output forced the kingdom to rely more on non-Saudi crude to fulfill its contracts.

By Zerohedge.com

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Leave a comment
  • John Di Laccii on October 01 2019 said:
    Houthis my brothers give 'em some again. Give 'em some. They need it badly. Give 'em some.
  • Mamdouh Salameh on October 01 2019 said:
    Aramco’s claim that it has managed to restore its oil-production capacity to pre-attack levels raises a very puzzling question. Did Saudi Arabia exaggerate the damage to its production capacity to incite the United States to retaliate against Iran or has it been lying about the speedy repairs to the damaged oil infrastructure.

    If it did indeed exaggerate the loss of production capacity, then it is possible that it would be able to restore it speedily and this will explain the decline in oil prices. But then it failed to get the United States to retaliate against Iran thus weakening its strategic position vis-à-vis Iran.

    If, on the other hand, there was a loss of 5.7 million barrels a day (mbd) of Saudi production capacity, then the damage must have been extensive and this means that Saudi Arabia has been very economical with the truth when assuring the global oil market that full capacity is back online. Contractors and fabricators contacted by the Wall Street Journal estimated that repairs and manufacturing of equipment needed to replace the damaged ones could take months rather than weeks.

    Saudi Arabia would have been able to meet its obligations to customers in two ways. One is to buy crude from other producers and ship it to refineries around the world where it is needed. The other is to draw on its stored oil estimated at 130 million barrels (mb) but that volume could be depleted totally in less than one month if repairs exceed a month. So rather than depleting its stored oil, Saudi Arabia could save some of its stored oil for an emergency and buy crude from other producers to meet its obligations.

    The truth will always will out. And we will know the truth from oil price movements. If oil prices start to surge to $70-$75 a barrel by end of October, we will get the proof that Saudi Arabia has neither been honest about the extension of the damage to its oil infrastructure nor about the restoration of production capacity.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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