London — Oil prices fell Tuesday, giving back more than half of Monday's surge, after Saudi energy minister Prince Abdulaziz bin Salman said he expects most of the country's lost crude production to be restored within two weeks.
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The fast recovery appeared to allay market fears that a substantial chunk of Saudi output would remain offline following Saturday's attacks on the kingdom's Abqaiq crude processing facility and Khurais oil field.
Saudi officials said the 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.
The US, a key ally of the Saudis, has accused Iran of directly carrying out the attacks, which Tehran strongly denies. Yemen's Iran-backed Houthi rebels claimed responsibility for the attacks.
US Secretary of State Mike Pompeo will meet with Saudi Crown Prince Mohammed bin Salman in Jeddah Wednesday to discuss the attacks.
"Many details of recent events remain unclear, including speculation about whether the attack originated within Iraq, Yemen or Iran," S&P Global Platts Analytics Chief Geopolitical Advisor Paul Sheldon said. "The final US conclusion will be important, but in any case, we believe the most likely response to alleged Iranian involvement would be cyber or something similarly less dramatic than military action."
The attacks also lay bare Saudi Arabia's oil vulnerability.
**Crude futures settled lower Tuesday as traders were reassured that Saudi Arabia will be able to restore its full crude production capacity soon.
**NYMEX front-month crude settled $3.56 lower at $59.34/b, while ICE front-month Brent settled $4.47 lower at $64.55/b.
**In refined products, NYMEX front-month ULSD settled 9.42 cents lower at $1.9896/gal, and NYMEX front-month RBOB settled 7.73 cents lower at $1.6751/gal.
**The arbitrage for US crude exports tightened Tuesday, causing physical crude differentials to tighten.
**West Texas Intermediate crude at the Magellan East Houston (MEH) terminal was assessed Cushing WTI plus $3.35/b, down from $4.05/b Monday.
**Mars sour crude was assessed at a $2.80/b premium to Cushing WTI, weakening just 10 cents on the day, and up from a $1.05/b premium last Friday.
**Americas VLCC freight rates had jumped Monday on an increase in crude loading activity out of the US Gulf Coast. Monday saw around eight cargoes working out of the USGC and East Coast Mexico-loading VLCC markets.
**However, VLCC activity slowed Tuesday as more supply certainty returned to the market, and charterers withdrew some cargoes intended for Asian discharge.
**In August, Saudi Arabia pumped 9.77 million b/d, according to the most recent Platts OPEC survey, with exports averaging 7 million b/d in recent months
**Saudi Aramco's largest oil processing facility (7 million b/d). Processed about 50% of the company's crude oil production in 2018, making it safe for pipeline transport.
**Abqaiq is currently processing some 2 million b/d of crude, down from 4.9 million before the attacks, the CEO of state oil giant Saudi Aramco Amin Nasser said. The repairs on the facility are expected to be complete at the end of the month.
**Output from the Ghawar field (5 million b/d), Shaybah (1 million b/d) and Khurais (1.5 million b/d) fields is all processed at Abqaiq. Khurais, which suffered some damage in the attacks, produces mainly Arab Light crude.
Stocks and Terminals
**As of September 5, Saudi Arabia's main export terminal of Ras Tanura held 39.2 million barrels in stocks, 61.6% of full capacity, according to data from Ursa.
**Crude stocks held at Khafji were 2.8 million barrels (24.6% of storage capacity), while Yanbu on the Red Sea coast held 31.1 million barrels in stocks (59.3% of capacity), according to Ursa data.
**As of June, Saudi Arabia held 187.9 million barrels of crude inventories, according to the Joint Organizations Data Initiative. This implies the kingdom has 26.8 days of export cover, assuming zero crude production and steady exports of 7 million b/d.
**Saudi Arabia holds crude in storage in domestic tanks as well at sites in Egypt, Japan and the Netherlands.
**A sustained outage could boost demand for Permian light sweet crude exports. US shale oil output is forecast to climb to 8.84 million b/d in October, up nearly 1.23 million b/d year on year, the US Energy Information Administration said Monday.
**US President 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 SPR 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.
**International Energy Agency
**The IEA says oil markets are "well supplied with ample commercial stocks." IEA consumer countries are required to hold the equivalent of 90 days' worth of net oil imports.
**Secretary General Mohammed Barkindo spoke with the IEA's Faith Birol Monday, telling the IEA chief there was no need for an emergency meeting at present.
**The attacks could lead to OPEC and its allies to reassess plans to tighten compliance with crude production quotas.
**Russian energy minister Alexander Novak has said commercial oil stocks are sufficient to cover any deficit in the market.
**Traders at Asian refineries, the main customers for most Middle East crudes, said Saudi Aramco had contacted them to reassure them of supply security.
**At least two Chinese buyers of Arab Light and Arab Extra Light crude have been notified by Saudi Aramco that they will have to take Arab Medium or Arab Heavy as substitute grades.
**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.
**US imports of Saudi crude fell to 271,000 b/d for the week ended September 6, the lowest weekly total on record, according to the US Energy Information Administration. About half of Saudi crude exports to the US are sent to West Coast refiners, according to the EIA.
**According to the most recent monthly EIA data, about 76% of the Saudi crude imported by US refiners in June was medium crude, 15% was light sour and nearly 9% was heavy sour.
**The biggest US buyers of Saudi crude in June were: Motiva's Port Arthur, Texas, refinery, which imported 24% of Saudi crude shipped to the US that month; PBG Energy's Paulsboro, New Jersey, refinery, which imported 21%; and Chevron's Richmond, California, refinery, which imported 22%.
-- Staff Report, firstname.lastname@example.org
-- Edited by Gary Gentile, email@example.com