Saudi oil output unlikely to be fully restored as quickly as officials say: analysts

London — Saudi oil output is unlikely to be fully restored in the next couple of weeks despite assurances by Saudi officials and a drawdown of oil stocks to keep exports flowing, according to analysts.

Prince Abdulaziz bin Salman, the new energy minister appointed last week, said in a briefing Tuesday that more than half of the 5.7 million b/d of output lost after attacks on oil facilities on Saturday was back online and predicted production would return to 11 million b/d by the end of this month and 12 million b/d by the end of November. He also said that exports in September would be unaffected because oil stocks were being drawn down.

"They could say production capacity is 11 million or 12 million b/d but can you process 12 million b/d of crude and bring it to consumers, that's the question," said Iman Nasseri, managing director for the Middle East at FGE Energy. "At the moment bringing everything back to normal by the end of September is very unlikely."

Saturday's attack on the Abqaiq plant, the world's biggest oil processing facility, and the Khurais field, the country's second largest with a production of 1.45 million b/d, sent Brent prices surging by about 20% in early Monday trading and ended the day nearly 14.6% higher at $69/b. Brent prices have since fallen 7.6% to around $63.75/b.

Saudi Arabia, the world's largest crude exporter, pumped 9.77 million b/d in August, according to the latest S&P Global Platts survey of OPEC production.

Analysts are skeptical and say the numbers do not assure the oil markets about current production levels and that the outage will leave the kingdom with little spare capacity, keeping markets on edge.

"I think they are certainly going to keep the exports and the market and customers happy and back to normal [as soon as possible]," said Nasseri.

"In terms of bringing back production and capacity, we may see a bit of a longer process and that means a bit of a longer draw from inventories and a bit less [in terms of] domestic refinery runs."

OIL STOCKS

To keep supplies flowing to international customers, Saudi Aramco has also reduced feedstock supplies to local petrochemical companies and cut supply of crude to neighboring Bahrain in the wake of the attacks.

Analysts also question the level of stocks still available to meet supply to Aramco's customers. Neither Prince Abdulaziz nor Aramco CEO Amin Nasser shed light on the level of oil stocks still available.

Saudi crude stocks in July stood at 179.8 million barrels, the lowest since August 2007, according to the Joint Organizations Data Initiative. Saudi Arabia holds crude in storage in domestic tanks as well as at sites in Egypt, Japan and the Netherlands.

Saudi officials Tuesday said they plan to replenish inventories, but did not provide further details.

"If it's going to take them several months to bring all their production capacity online, it may not be a quick process to start refilling those inventory levels," said Richard Mallinson, a senior analyst at Energy Aspects.

"The size of the disruption is unprecedented for an attack of this type."

NATURAL GAS

Saudi officials also did not provide updates on the loss of natural gas and natural gas liquids caused by the attack on Abqaiq. The attack knocked out 2 Bcf/day of associated natural gas, reducing the supply of ethane and natural gas liquids by up to about 50%.

A lack of clarity about the return of gas and NGL production also raises questions on whether Saudi Arabia will use its oil products as feedstock for power generation.

"I am very certain that there has been a spike in oil burn in the power sector; I think gasoil and fuel oil rather than crude oil," said Nasseri.

The level of the kingdom's spare capacity is also a point of concern for the markets, because it was a global cushion for any potential outages or disruptions outside of Saudi Arabia.

"My biggest concern is related to available spare capacity globally," said Giovanni Staunovo, an analyst for UBS. "The other element of concern is the speed of recovery," he added, noting that similar outages in other places took longer to fix.

Analysts also expressed doubt about the ability of Aramco to pull off the long-delayed initial public offering at a time when it is busy repairing the damaged facilities, the cost of which has yet to be assessed.

However, Saudi officials have insisted the government will press on with plans to list up to 5% of the company in local and international listings.

Aramco chairman Yasir al-Rumayyan, formerly the head of the country's sovereign wealth fund, said the IPO will take place anytime within the next 12 months, depending on market conditions. He did not provide further details at the briefing.

Nasser has previously said the local listing will be the "primary" one.

--Dania Saadi, dania.el.saadi@spglobal

--Edited by Jonathan Fox, jonathan.fox@spglobal.com