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Who will benefit from reduced oil supplies from Saudi Arabia?

UNITED STATES, WASHINGTON (OBSERVATORY) — The drone strike on the oil infrastructure of Saudi Arabia is one of the most serious incidents in the history of world energy. Although these attacks were shorter than the 1979 Iranian revolution or Iraq’s invasion of Kuwait, they are at the top of the list of major supply disruptions, given the volume of reduced production (5.7 million barrels per day).

File Bloomberg
File Bloomberg
File Bloomberg
File Bloomberg

Amid the risk of a 5% decline in global oil supplies for several weeks on Monday, oil prices jumped $ 8 a barrel. Saudi Arabia claims that all damaged infrastructure will be restored by the end of September and that the consequences of the disruptions will not affect a single buyer, since vast oil reserves have reduced oil prices. However, the likelihood of conflict in the Middle East is high.

The oil market reacted to drone attacks instantly: on Monday-Tuesday, oil prices skyrocketed. Mars, whose quality is very similar to the grade Arab Light, processed in Abkaik along with Arab Extra Light, jumped $ 2 per barrel on Monday. Urals oil prices rose $ 1 per barrel.

Saudi Aramco’s announcement of rebuilding damaged infrastructure by the end of September reassured fears of longer-term disruptions, although Arab Light buyers will face unforeseen price increases over the next few days. Taking the opportunity, the Russian oil company Surgutneftegas sold several ESPO cargoes to Asia at a premium of $ 7.2 per barrel for Dubai quotes, breaking a record for a 6-year high.

In parallel, Iraq increased the October official selling price of Basrah Light to Asia. The October delivery price for Basrah Light, destined for Asia, rose 30 cents from the previous month to a premium of $ 1.65 per barrel compared to the Dubai Average.

Basrah Heavy fell 50 cents to a discount of $ 1.25 per barrel. Iraqi oil exports reached a 4-month high in August, 3.487 million barrels per day. This indicates a clear non-compliance with OPEC + quotas, which was mitigated by Kirkuk flows, which halved to 0.181 million barrels per day (compared with 0.353 million barrels per day) in July 2019. The

Iranian national oil company NIOC took the initiative of Saudi Aramco in relation to its official selling price for October, while still trying to maintain a market presence in Asia.

The October price of the Iranian Light grade, tied to Asia, rose 55 cents to $ 1.8 a barrel from the Oman / Dubai average, while Iranian Heavy increased 10 cents to $ 0.05 a barrel.

In addition to shrinking supplies, Iran suffers from shrinking active varieties – the last shipment from Sorosh was in April 2019 to the Maldives, and the last shipment from Forouzan was delivered to China in the early days of March 2019. Like other Middle Eastern exporters, NIOC lowered its European prices in the north-west by $ 1.3-2.2 per barrel and reduced medium-term OSP by $ 0.6-1.8 per barrel.

The last time Iranian cargo arrived in North-Western Europe in June 2018, however, the NIOC managed to maintain relations with Turkey, despite U.S. sanctions, delivering the last cargo in early September 2019.

In August 2019, the possible export of Iranian oil fell to 0 , 29 million barrels per day, and maybe even more due to the opaque nature of STS operations in and around Fujairah.

After Urals haggled with an abnormal Brent bonus this year, the advent of a new European mid-sour grade made Urals sink into familiar territory. Production at the Johan Sverdrup field will begin in October, and by the end of November, production will increase to 0.3 million barrels per day. After most of August, Urals Med was above $ 1 per barrel of premium for Dated, the last two weeks have narrowed the differentials and lowered prices for Urals Baltic.

UK-based Tullow Oil announced its second discovery at the offshore Orinduik Block in Guyana. It discovered a new Joe-1 field in the Upper Tertiary sediments of the Guyana Basin. The well was drilled to a total depth of 2,175 m in waters of 780 m depth. Tullow CEO Paul MacDade promised next year to drill 3 or more exploration wells in the offshore zone of Guyana to expand the company’s portfolio in Guyana.

Although the risk of Orinduik Block for further discoveries is reduced, the overall enthusiasm is somewhat reduced, as the first exploratory well will be installed on the Kanuku Repsol block, which will be drilled next week.

Oil workers at Vaca Muerta Argentine shale threaten to go on strike if the government maintains a 90-day freeze on oil and fuel prices across the country. This has already led to the suspension of hundreds of oil workers across the country. President Macri’s administration chose to freeze the price to cope with 50% inflation.

This all happens at the moment when he lost the national primaries to Alberto Fernandez. This decision froze oil prices at $ 49.5 per barrel, as supply disruptions in Saudi Arabia widen the gap between market quotes and the previous price. The Argentinean government deployed military police to protect Vaca Muerta assets and maintain “necessary security conditions” amid the appetite for strikes.

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