- Oil Rises as Market Doubts Saudi Ability to Restore Output Soon
Following drone attacks on Saudi Arabia’s largest crude oil processing plant this month, the Kingdom came out to reassure investors of its ability to restore crude oil production to the pre-attack level of 9.89 million barrels per day by the end of September despite the attacks disrupting over 5 million barrels per day of crude oil production.
However, the oil market now doubts that possibility as Saudi Aramco has started asking customers to switch oil grades and even delay shipments. Suggesting that the Kingdom is having trouble in meeting registered orders.
“The geopolitical risk premium has returned with a vengeance and supply-side developments have been thrust back into the spotlight,” Stephen Brennock, a crude oil broker at oil broker PVM, stated.
“While Saudi oil facilities smoulder, the potential for fresh outages in Nigeria, Libya and Venezuela continues to hang over the market.”
The uncertainty surrounding the oil market bolstered crude oil prices on Monday as Brent crude gained 31 cents to close at $64.41 per barrel, while the U.S West Texas Intermediate crude rose 28 cents to $58.37 per barrel.
This was because certain part of the market is already pricing in lower oil supply in the fourth quarter, especially with the news of Saudi delaying shipments and asking customers to switch grades.
Still, the other part of the market does not think the current oil price is sustainable given rising US crude production amid the ongoing trade war.
“When you look at how much resiliency that there is built into the marketplace, I think most of the market assumes that if prices go up, the U.S. and other countries will respond,” said Braziel, president and principal energy markets consultant at RBN Energy.
“It may take a little time, so prices may spike in the short term, but not the long term. That forward curve still is on the downhill slide,” he said, referring to futures prices for oil.
Braziel said Saudi Arabia could resume production in the affected area as early as next week because the Kingdom has built its pipeline to shift production in ways that make it more resilient to disruptions.
“Put all that together, and [the price per barrel] was just not going to hang up there the way people thought,” Braziel explained.
