, 10 tweets, 4 min read Read on Twitter
More details on Abqaiq (as reported by @energyaspects): Attacks caused shut-in of 5.7 mb/d of crude production (58% of current output), 2 bcf/d of gas output (18% of annual average domestic gas sales) and over 0.5 mb/d of ethane and NGLs output (50% of current production). #oott
Attacks damaged parts of 7 mb/d Abqaiq processing facility and another plant that handles output from the 1.2 mb/d Khurais field. Although redundant processing capacity should enable some of the affected output to return quickly, a full restoration will likely take weeks.
Saudi crude contains H2S & must be processed to make it fit for transport through pipelines or processing in refineries. EA understands that at least 1 of 7 stabilisation trains at Abqaiq has been severely damaged while 8-10 of the 18 desulphurisation towers are out of action
If outages are lengthy, Aramco will struggle to hit export specification for Arab Light and Extra Light, and may even be forced to declare force majeure on some exports and offer Arab Medium (AM) and Arab Heavy (AH) grades in place of the lighter streams.
Aramco can draw 50-60 mb of domestic crude stocks held at ports such as Ras Tanura to keep exports flowing for now, but that only provides cover for 10 days at current disruption levels. Aramco also has stocks in Japan, China, Egypt and the US, which may also be called upon.
UAE, Kuwait & Russia have spare capacity amounting to 0.8 mb/d. This will not be enough to fill the gap and the mismatch is quality is also likely to be acute. EA expects the IEA and US DOE to also release strategic stocks to fill the gap if the Saudi outage is prolonged.
We expect spike in Brent tomorrow. Size depends on communication by SA Ministry. While lasting $10 geopolitical risk premium is justified (how is it even possible that this attack is possible?), we remain skeptical for #Brent outlook while PMIs slow down worldwide.
Most importantly however, this is NOT a structural event that moves anchor price to, say, $100/bbl. Nor will it help E&P equities beyond some eventful trading days.
However, #capitalstarvation of US shale will be structural and will slow down US growth come 2021. Then, oil markets will enter a long term bull market IMOH. We explained this in previous tweets in more detail. #oott
In summary, the event should make for a nice short squeeze next week. Beyond that, I am doubtful it will meaningfully impact inflation numbers in Q4 for @KeithMcCullough. Finally, I wonder how this will impact 2/5/10 yields in this natural risk off - inflation tension
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