Security incidents targeting oil facilities, pipelines and tankers have been on a steep upward trend in 2021, according to data compiled by S&P Global Platts.
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Security events -- such as physical attacks on petroleum infrastructure, or shipping -- in the Persian Gulf and the Arabian Peninsula region have tripled on an annualized basis since 2017, according to data compiled in the Platts Oil Security Sentinel.
The number of incidents reported by Platts over the period has peaked this year, with 27 confirmed security events verified between Jan. 1 and Sept. 6. This is out of a total of 61 incidents from 2017 onward.
Data presented in the Platts Oil Security Sentinel also shows the geographical range of security events across the Arabian Peninsula to the Strait of Hormuz and the eastern coast of the UAE.
Since 2017, the Gulf of Oman, the Red Sea and the Bab al-Mandab chokepoint have experienced the majority of maritime attacks.
Oil prices have not always responded very sharply, as the majority of these events have been low level, with little to no impact on production.
However, the attacks on Saudi Arabia's Abqaiq facility and the Khurais oil field in 2019 represented a significant threat to physical supply, briefly shutting down 5.7 million b/d of crude output, and on the first day of trading after the attack, Dated Brent crude jumped $8 to $68.20/b.
Analysis from the Platts Oil Security Sentinel shows how the growing importance of global strategic petroleum reserves, greater diversity of supply, the resilience of major producers like Saudi Arabia and the low intensity nature of the reported security incidents have helped to reduce the so-called "risk premium" historically attached to the grades of crude produced in the Middle East.
"One overstated issue is the link between oil prices and disruptions, and more specifically the assumption that instability from low oil prices triggers supply disruptions from large oil exporters," said Paul Sheldon, chief geopolitical adviser at Platts Analytics.
But all these incidents have added to geopolitical tensions in the Middle East, which accounts for over 30% of the world's supply of seaborne crude.
The reactions to supply disruption events and rising tensions in the Middle East are most obvious in the Platts Dubai crude benchmark, used to price or hedge nearly all of the region's oil exports to Asia.
The Platts Brent-Dubai spread, which measures the premium of Platts Dated Brent to Platts Dubai, has also reacted to recent incidents, the bulk of which have targeted Saudi Arabia, the world's largest crude exporter.
The Brent-Dubai spread has averaged $1.56/b from January to August this year, compared with $1.13/b in 2020, Platts data showed.
Spare capacity shift
The price impact of supply disruptions or security risks to production typically depend on the level of available spare capacity.
"When the market has a thin buffer, the demand for inventory can quickly increase or decrease, creating a volatile price environment," Sheldon said.
Spare capacity, is currently more than double its roughly 2 million b/d average since 1990 and commercial oil stocks are healthy.
"OPEC's role in stabilizing markets through readily-available spare capacity is often understated. During periods of large supply disruptions OPEC (now OPEC+) possesses the world's only readily-available production to offset sudden losses elsewhere," Sheldon added.
Platts Analytics sees spare capacity falling to 3.3 million b/d by year-end, with almost 90% of this in the hands of core OPEC+ producers -- Saudi Arabia, Russia, the UAE and Kuwait.
Global spare capacity ranged between 7-9 million b/d from May to December last year, as OPEC+ embarked on massive production cuts as the global oil markets were rattled by the COVID-19 pandemic.
Spare capacity was around 4.45 million b/d in August, according to Platts Analytics.
Spare capacity is defined by Platts Analytics as crude voluntarily held offline but available to be brought back into production within 90 days, excluding its near-term forecast for US shale.
According to Platts Analytics, the equivalent of approximately 4.12 million b/d of crude has been displaced temporarily due to a mixture of security incidents like attacks, geopolitics and adverse weather events over the last five years.