London — Oil markets are feeling the ramifications of the attacks on Saudi Arabia's key Abqaiq processing facility and Khurais oil field over the weekend, which pushed crude futures up by more than 15% when markets opened Monday.
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The threat of an extended supply outage from Saudi Arabia, the world's top crude exporter, highlights the lack of spare production capacity in the market, with the impact of this being felt across upstream and downstream markets.
Saudi officials said fires caused by "terrorist attacks" had shut in 5.7 million b/d of crude production -- half of the kingdom's capacity -- along with 2 Bcf/d of associated gas that produces about 700,000 b/d of NGLs.
**This outage is significant, representing more than half the kingdom's production last month.
**In August, Saudi Arabia pumped 9.77 million b/d, with exports averaging 7 million b/d, according to the most recent Platts OPEC survey.
**The 7 million b/d Abqaiq facility is Saudi Aramco's largest oil processing facility and processed about 50% of the company's crude oil production in 2018.
**The Abqaiq processing plant has the ability to depressurize, desulfurize, and de-gas crude production, making it safe for pipeline transport.
**It contains 18 stabilization towers used to remove hydrogen sulfide and other liquids and multiple spheroids for depressurization.
**Khurais, about 250 km southwest of Dhahran, is the second-largest oil field in Saudi Arabia with capacity to pump around 1.5 million b/d of mainly Arab Light crude.
**Output from the 5 million b/d Ghawar field, Shaybah and Khurais fields is all processed at Abqaiq.
**Data from geospatial startup Ursa shows that as of September 5, Saudi's main export terminal held 39.2 million barrels in stocks, 61.6% of full capacity.
**Stocks at Khafji were 2.8 million barrels, 24.6% of capacity, while Yanbu on the Red Sea coast held 31.1 million barrels in stocks, 59.3% of capacity, according to Ursa data.
**Saudi Arabia's own stockpiles of crude totaled 187.9 million barrels in June, according to the Joint Organizations Data Initiative. This implies the kingdom has 26.8 days of cover, assuming zero crude production.
**Saudi Arabia holds crude in storage in domestic tanks as well at sites in Egypt, Japan and the Netherlands.
**ICE Brent futures jumped close to a four-month high of $71.95/b in early-Asian trading hours.
**But by 1026 GMT, ICE November Brent pared some of these gains, trading at $65.38/b, up by $4.95/b from Friday's close.
**Analysts said oil prices had fallen after an initial surge as there seem to be significant volumes of oil in Saudi storage which should help keep exports flowing and mitigate any disruption in the short term.
**But prices are likely to stay supported as the geopolitical risk premium has come back into focus due to the latest attacks.
**The US, a key ally of the Saudis, has accused Iran of directly carrying out the attacks, something Tehran strongly denies. Yemen's Iran-backed Houthi rebels claimed responsibility for the attacks.
**S&P Global Platts Analytics noted prices are likely to break out of the $55-$65/b options range, more likely testing the high of $70/b it previously forecast, if not higher.
**The IEA said oil markets were "well supplied with ample commercial stocks."
**IEA consumer countries are required to hold emergency oil stocks equivalent to 90 days' worth of net imports.
**Platts Analytics estimates global spare capacity is 2.3 million b/d, but more than 1.6 million b/d is in Saudi Arabia, showing how vulnerable the market is to supply-side risks.
**The attacks could lead to OPEC reassessing its plans to tighten compliance with crude production quotas.
**An OPEC source told Platts it would be premature for the cartel to discuss any production increase yet.
**The threat of a larger than expected outage could also result in an emergency OPEC/non-OPEC meeting, analysts said.
**OPEC Secretary General Mohammed Barkindo spoke with the IEA's Faith Birol Monday morning, telling the IEA chief there was no need for an emergency meeting at present.
**Analysts have noted that if the Saudi outages last long, OPEC's production cut agreement with its non-OPEC allies could be at risk.
**Several OPEC officials told Platts they are assessing the impact before deciding on cuts.
**US President Donald Trump has authorized a release of US strategic oil stocks, "if needed, in a to-be-determined amount" to keep the oil market well supplied.
**The US could move as much as 2.12 million b/d of Strategic Petroleum Reserve crude to global markets, but as much as 1.74 million b/d of additional marine distribution capacity would likely be needed in the event of an Abqaiq attack, according to a 2016 report by the US Department of Energy.
**Russian energy minister Alexander Novak has said commercial oil stocks are sufficient to cover any deficit in the market.
**Novak said a decision over whether to increase output to compensate for the drop in Saudi production will depend on how long it takes Saudi oil output to recover from the incident.
**Novak also added that the current OPEC+ production cut agreement remains in place and participants should comply.
**Traders at Asian refineries, the main customers for most Middle East crudes, said Saudi Aramco had contacted them to reassure them of supply security.
**China, Japan, South Korea and India are key customers of Saudi crude. Other key buyers include the US, Egypt, Singapore, Taiwan, South Africa and Thailand.
**Saudi crude is generally a mix of heavy to medium sour oil, which is generally high in sulfur with a high residual fuel and vacuum gasoil yield.
**The oil is particularly popular with complex refineries in Asia, US and Europe which can crack heavy sulfurous crudes, giving high middle distillate product yields.
**The key export grades are Arab Heavy, Arab Medium, Arab Light and Arab Extra Light.
-- Eklavya Gupte, firstname.lastname@example.org
-- Edited by James Burgess, email@example.com