According to Hans van Cleef, senior energy economist at ABN AMRO, if the Saudi statement is correct, oil production will be back to normal at the end of the month, and global inventories are sufficient to meet global demand.
Key Quotes
“The rumoured request from Saudi Arabia to Iraq for 20 million barrels of oil to supply refineries triggered fresh support for oil prices. This suggests that the market is still somewhat suspicious and highly sensitive to supply-related news. And not without good reason, as the recent attacks show the vulnerability of the Saudi oil infrastructure.”
“The Saudi authorities need to step up the protection of oil production facilities while at the same time ensuring they meet their obligations towards consumers. Saudi Arabia is not only the third largest oil producer of the world, it is also the only swing producer of the market. In any event, when crude production is hit, Saudi Arabia is the one country looked at to step in by increasing production. However, with the oil market’s ‘producer of last resort’ becoming less reliable, not only the Saudi oil supply, but global oil supply could be at risk.”
“Before the attack, the market was already mainly driven by supply-related news, which suggested oversupply (US crude production, US inventories, US/Iran diplomatic talks, economic slowdown). But after the attack, the focus seems to have shifted towards risks of supply/production shortages and the impact on the Saudi’s spare capacity. As long as Saudi production is not fully restored, and demand is partially met by tapping strategic reserves, the oil market is extremely vulnerable to new shocks.”
“Should there be a new shock – this can be a new attack on global oil supply, or for instance a hurricane in the Gulf of Mexico – markets could fear that supply would drop further and inventories will quickly dissipate, resulting in possible shortages. This could again trigger a significant price jump.”
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