Oil prices fell sharply on late Tuesday morning as Reuters reported that Saudi Arabia’s oil output may return to normal more quickly than earlier reports had suggested.
Oil production is expected to return to normal within two to three weeks, anonymous Reuters sources suggested, contrary to yesterday’s reports that took a more pessimistic view of how long it would take for Aramco’s production to come back online.
By 10:40am EDT, WTI had sank $3.83 per barrel (-6.09%) to reach $59.07. The price is still high compared to the $55/$56 levels that we’ve seen in recent weeks. Brent crude is also trading sharply down, losing $4.19 per barrel (6.19%) on the day, reaching $63.49 per barrel. Brent is still trading up week over week.
Saudi Arabia is now thought to be close to bringing back online 70% of the 5.7 million barrels per day that were brought offline after an attack on The Kingdom’s oil infrastructure, a top Saudi official told Reuters. The rest, the source said, would come back online within two to three weeks.
Yesterday, sources reported that it could take months to fully restore Saudi Arabia’s oil output.
The news of the attacks that took Saudi production offline sent oil prices soaring on Monday to a 20% increase, doing what OPEC and its allies have been trying to do for over a year—bring down oil inventories to lift prices.
On Saturday, the Abqaiq facility and the Khurais oil field in Saudi Arabia were hit by attacks, which resulted in the suspension of more than half of Saudi Arabia’s oil production. The onshore Khurais oil field has the capacity to produce 1.2 million bpd of Arab Light, according to EIA estimates. The Abqaiq facility, for its part, is considered to be the most important oil processing plant in the world.
By Julianne Geiger for Oilprice.com
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However, the whole situation could change overnight if repairs to the damaged facilities could take weeks rather than days.
At present, Saudi Arabia is able to meet oil demand by its customers by tapping its stored crude oil. But two to three weeks of withdrawing 80- 120 million barrels of oil could deplete its inventory and deprive the world’s largest exporter of oil of any spare production capacity making it unable to meet global oil demand in case of an emergency. That could push oil prices beyond $80 a barrel. So all depends on the accuracy of Saudi pronouncements about the time Aramco needs to repair the damage.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London