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(Bloomberg) -- On Sept. 14, Saudi Arabia suffered the single-biggest blow to its oil infrastructure in the country’s history when critical processing facilities were attacked.After a roller coaster week for the global oil market, what follows takes stock of everything that happened, where we are now, and what to watch in the weeks ahead.At about 4 a.m. local time, oil processing facilities at Abqaiq and Khurais in Saudi Arabia were attacked by what was initially reported as a swarm of armed drones. The resulting fires were extinguished within hours, but the drama had only just begun.There were at least 17 points of impact at Abqaiq, the world’s largest oil-processing facility, and more at Khurais.Damage to the two sites reduced Saudi Arabia’s oil production by 5.7 million barrels a day, from about 9.8 million. As a single-impact event, it was probably the largest disruption to the oil market ever.Abqaiq is the world’s largest oil-processing facility and handled about half Saudi Aramco’s production last year. It treats the crude from some of Saudi Arabia’s giant onshore fields, removing sulfur and volatile hydrocarbons that vaporize at atmospheric pressure to stabilize the crude before it’s pumped to refineries or export terminals. It was operating at a rate of about 4.5 million barrels a day before the attack.Khurais is Saudi Arabia’s second largest oil field, with the capacity to pump about 1.45 million barrels a day of Arabian Light crude. It was running at a rate of 1.2 million barrels a day before the attack.Most of Saudi Arabia’s lighter crude streams are produced at its onshore fields. Other deposits such as Manifa and Safaniyah, which don’t depend on Abqaiq for processing, produce the heavier grades.Photos of the aftermath of the attacks at Abqaiq, released by the U.S., show puncture marks on tanks that form part of the process to remove gas before the crude can pass to the stabilization towers.Apportioning BlameWithin hours, Houthi rebels in Yemen claimed responsibility, as they did for strikes against Saudi Arabia’s East-West pipeline in May, and the Shaybah oil field in August. Saudi Arabia started a devastating bombing campaign in Yemen in 2015 — with some U.S. backing and weaponry — after the Houthis took control of the capital and other parts of the country. Despite thousands of civilian deaths, terrible human rights abuses on both sides, and a humanitarian catastrophe, the war has settled into an ugly stalemate. Yemen’s Houthi rebels have stepped up retaliatory attacks against Saudi Arabia and say they will target all countries involved in the conflict.U.S. Secretary of State Mike Pompeo dismissed the Houthis’ claim, pinning the blame on Iran. “There is no evidence the attacks came from Yemen,” he tweeted. French Foreign Minister Jean-Yves Le Drian also dismissed the Houthi claims.Iran has denied responsibility.Twenty-five pilotless aircraft and cruise missiles of Iranian origin were used to attack the two sites, the Saudi Defense Ministry said at a press briefing four days after the incidents, where it displayed the remains of some of them. The range and accuracy of the weapons were beyond the capabilities of the Houthis, spokesman Turki al-Maliki said. The kingdom was still working “to determine the exact position of the launch point,” he added.Repairs and RestorationSaudi Arabia initially expected to re-start most lost oil output within days of the attack, but that early optimism was tempered after evaluation of the damage. Energy Minister Prince Abdulaziz bin Salman and Saudi Aramco CEO Amin Nasser still painted a positive picture of the kingdom’s ability to restore oil production and exports after the attack at a briefing on September 17. Here’s a summary of the key takeaways from the briefing:Production from the Khurais field restarted 24 hours after the attack, with output running at about 360,000 barrels a day.Abqaiq was processing 2 million barrels a day - 41% of its pre-attack throughput - and “its entire output is expected to be restored to prior rates by the end of September.”Saudi Arabia’s oil production capacity will be restored to 11 million barrels a day by the end of September and to 12 million by the end of November.Oil production will reach 9.8 million barrels a day in October, in line with the volume the country has been pumping in recent months.There will be zero reduction in flows of crude to customers.Oil analysts have been less optimistic. Repair of the Abqaiq facility is unlikely to be completed by end-September as planned and will instead take months, consultant FGE said in a report September 18, with production likely to average 8 million barrels a day this month. Full restoration of pre-attack capacity at Abqaiq will only be completed “as we approach the end of the year,” according to Rystad Energy.Exports Continue, Saudi Arabia Seeks FuelThe attack could affect flows of both crude oil and refined products, as Saudi Arabia cuts deliveries to its own processing plants in order to maintain exports. It will also shift the balance of Saudi crude supply toward its heavier grades from offshore fields at the expense of the lighter supplies mostly produced onshore and processed at Abqaiq.Saudi Aramco “will be able to meet all its commitments to customers this month by drawing on its crude oil reserves,” the energy minister said during his briefing. Those stood at 180 million barrels at the end of July, according to the Joint Organisations Data Initiative. It’s unclear how much of this will be available for sale and how much is needed as a minimum operating level.But some customers have already been informed of delays to some cargoes scheduled to load in early October, while others have been asked to accept heavier crude grades than those originally specified. Aramco’s head of Japan has assured Japanese refiners that the company will meet its contractual obligations. Aramco has accepted all crude nominations from Japanese refiners for loading in October, but some cargoes for Idemitsu Kosan have been delayed by several days.In order to maintain crude exports, Saudi Arabia’s refineries are expected to run at lower rates as the country scours global fuel markets for refined products. Aramco Trading Co., which buys and sells fuels on behalf of the state oil company, purchased diesel cargoes and also sought one-off supplies of aviation fuel in the days after the attack, according to people involved in those markets. Fuel oil, which can be used instead of crude for power generation, has also been bought, while exports of naphtha -- a building-block product for making gasoline and plastics -- have been disrupted.Few other suppliers have the ability to boost crude production to offset such losses from Saudi Arabia, which was the holder of most of the world’s spare oil production capacity. Two nearby countries that can raise output are the United Arab Emirates and Kuwait. Both have offered to supply more crude to Asian refiners. Saudi Arabia’s cut in supplies of lighter crude grades may favor sales of U.S. barrels as refiners seek comparable replacements.U.S. President Donald Trump authorized the release of crude from the Strategic Petroleum Reserve after the attack. The International Energy Agency Executive Director Fatih Birol said Wednesday that the oil market remains well supplied but that his agency remains vigilant about risk of disruptions and stands ready to act.Oil MarketThe attack created turmoil on oil trading desks from Tokyo to Houston. “Sunday and Monday were probably the most intense day and a half in the oil market I have had since 2008,” said Doug King, co-founder of the commodity hedge fund Merchant Capital. Order volumes were sky high and hedge funds, refiners and oil trading houses had their top traders staffing operations, according to interviews with multiple market participants. Brokers put special teams in place to beef up skeleton weekend crews.Brent crude jumped the most on record in dollar terms when oil markets opened after the attacks, adding as much as $11.73 a barrel to reach an intraday high of $71.95. But that only took it back to a price level last seen in May in a market that remains concerned by the prospect of weakening oil demand growth amid ongoing U.S. trade wars and slowing global economic growth.Asian countries, the biggest buyers of Saudi crude, will be hardest hit by any disruption, with India the most exposed as its own crude stockpiles are the smallest among those of the kingdom’s main customers, according to Wood Mackenzie research director Vima Jayabalan.Impact on SaudiThe attacks had “zero” impact on Saudi Arabia’s revenue and won’t affect its economy, according to Finance Minister Mohammed Al-Jadaan. Growth in the kingdom, where the oil and gas sector accounts for about 50% of gross domestic product, was on track to slow to 1.9% this year even as the non-oil economy showed signs of revival, according to the International Monetary Fund.The fallout could still test Saudi Arabia’s economic defenses. But low public debt and net foreign assets in excess of $500 billion offer significant ammunition. The stockpile of reserves “gives the monetary authority the ability to intervene in the markets at any time,” the central bank’s governor, Ahmed Abdulkarim Alkholifey, said on Tuesday. Saudi Arabia’s central bank said it’s prepared to inject liquidity in the financial system if needed to help the economy cope with the aftermath of this week’s major attacks on Aramco’s oil facilities.The attack could have consequences for a planned Saudi Aramco IPO. A prospectus published in May ahead of the company’s first international bond sale identified the importance of Abqaiq, noting that “the Company also depends on critical assets to process its crude oil, such as the Abqaiq facility which is the Company’s largest oil processing facility and processed approximately 50% of the Company’s crude oil production for the year ended 31 December 2018.”But a successful, deliberate attack was not listed under the operational risks and hazards that could have a significant impact on operations. The vulnerability of the kingdom’s most important oil asset will now be a focal point for investors.Global ImpactThe reverberations of the attack on the heart of Saudi Arabia’s oil industry have potential to drain the remaining risk appetite from global markets.Higher oil prices will inevitably feed through into the prices consumers pay at the pump for gasoline and diesel, and to the cost of home heating oil and feedstocks for making plastics and the other products that depend on oil-based chemicals. But the oil shock alone won’t lead to a global recession, according to RBC Capital Markets’ Global Macro Strategist Peter Schaffrik.Response ScenariosSaudi Arabia’s Crown Prince Mohammed bin Salman and U.S. Secretary of State Mike Pompeo have agreed that Iran must be held accountable for the attack. Possible responses range from doing nothing to open military conflict.The tougher the response, the more oil is likely to move higher. At the same time, a non-response could embolden whoever was responsible for the attacks.President Trump has announced new sanctions on Iran’s “national bank,” but declined to say Friday whether he is planning for military action. Pompeo visited Saudi Arabia and United Arab Emirates to “build out a coalition to develop a plan to deter” Iran.Saudi Arabia could accept the Houthi claims that it launched the attack and step up its military action in Yemen, specifically targeting Houthi drone and missile capabilities, but that “might require a larger military commitment from Saudi Arabia at a time when it wants the opposite,” according to Emily Hawthorne, Middle East and North Africa analyst at Texas-based advisory firm Stratfor Enterprises.Or it might continue to pin the blame on Iran and seek talks with the Houthis to bring the Yemen conflict to an end and deprive Iran of a proxy on its southern border.A call for direct military strikes on Iran, from Republican Senator Lindsey Graham among others, are seen as unlikely to be the preferred avenue for retaliation. U.S. or Saudi military strikes on Iran would lead to “all-out war,” Iran’s foreign minister Javad Zarif said in an interview with CNN.\--With assistance from Paul Abelsky and Anthony DiPaola.To contact the reporter on this story: Julian Lee in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Alaric Nightingale at email@example.com, Brian WingfieldFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Crude traded below $60 a barrel as investors also weighed the prospect of an earlier-than-expected recovery in state-run Saudi Aramco's affected production.
The attack on Saudi facilities on Saturday caused the biggest oil supply disruption for more than 50 years. Consumers around the world could see costs rise for products ranging from gasoline and diesel to home heating costs and air fares, after this weekend's attacks caused a spike in global oil prices. HOW DOES THE PRICE OF OIL FACTOR INTO THE DIESEL AND GASOLINE PRICE?
Oil ended nearly 15% higher on Monday, with Brent logging its biggest jump in over 30 years amid record trading volumes, after an attack on Saudi Arabian crude facilities cut the kingdom's production in half and fanned fears of retaliation in the Middle East. The attack heightened uncertainty in a market that had become relatively subdued in recent months and now faces the loss of crude from Saudi Arabia, traditionally the world's supplier of last resort. Brent futures saw more than 2 million contracts traded, an all-time daily volume record, Intercontinental Exchange spokeswoman Rebecca Mitchell said.
(Bloomberg Opinion) -- A meeting of ministers from OPEC states and their oil-producing allies will take place in Abu Dhabi this week. It will probably be a subdued affair. Oil prices remain stubbornly low despite big output cuts by the so-called OPEC+ group and geopolitical factors such as the U.S. sanctions on Iran.The meeting of the Joint Ministerial Monitoring Committee, a body set up by OPEC+ to oversee its production-cutting strategy, won’t reset the group’s approach but it might provide some clearer guidance on its goals. The ministers insist that they don’t have a target for how far they want the price of crude to rise, and say instead that their aim is to reduce excess stockpiles.But for market-watchers it’s tough to even get a sense of how big that stockpile is, and hence when the output-cutting exercise may be seen to have done its job.The original target of the output cuts back in November 2016 was to get stockpiles back to their five-year average level. That was never going to be enough, though. The problem is that this average has been inflated by the very excess stockpile that OPEC+ is trying to drain (as the chart below shows).As such, it’s been relatively easy to cut the inventory to close to this inflated figure but that has still left a huge amount of unwanted crude sloshing around. Not a very useful outcome when you’re trying to boost prices.Khalid Al-Falih, the departing Saudi oil minister, has acknowledged that the group needs a new target. The OPEC+ ministerial group concluded at its last meeting in July that the moving five-year average wasn’t working and it has been considering using a new benchmark from the more “normal” period (in global oil inventory terms) of 2010-2014.That leaves the producers with a lot more excess crude to drain. OPEC assessed that commercial oil stockpiles in the industrialized countries of the OECD totaled 2.955 billion barrels at the end of June. That’s 258 million barrels more than the 2010-2014 average for the same month.Using this figure would certainly be a step in the right direction in terms of truly managing the market’s excess inventory. Better still would be having a target that takes into account the growth in oil demand every year, by measuring stockpiles in terms of the number of days’ worth of demand they represent rather than in simple volumes.Measuring the number of barrels held in storage is all well and good, but with demand rising year after year (even if the rate of increase is slowing) the world now needs a bigger stockpile to provide the same amount of forward cover.Still, whether you measure them as simple volumes or in terms of cover for future demand, OECD stockpiles are rising. Admittedly, much of the recent increase comes from natural gas liquids (light oils produced in large quantities from U.S. shale) which are used widely as petrochemical feedstocks. When you strip these out of the numbers, OECD inventories of crude oil plus the major fuel products – gasoline, middle distillates (diesel, heating oil and jet fuel) and fuel oil – are below their five-year average level.Yet the stockpiles calculated on this basis are well above their 2010-2014 average and that’s the real problem for OPEC+ ministers when they meet in Abu Dhabi.Saudi Arabia can’t rescue oil prices on its own. With demand growth weakening and non-OPEC supply rising, the producing nations may to have to consider both longer and deeper cuts.To contact the author of this story: Julian Lee at firstname.lastname@example.orgTo contact the editor responsible for this story: James Boxell at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
U.S. oil futures head sharply lower Tuesday as an increase in tariffs, which took hold this weekend, heightened worries about a global recession — a bearish factor for global crude appetite.
Oil futures settled sharply lower Friday, contributing to a loss for the month, after reports that Russian Energy Minister Alexander Novak said Russia’s oil output cuts in August will be slightly smaller those agreed to under the deal between OPEC and non-OPEC producers.
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The decline in oil inventories was the largest in the U.S.in five weeks, and came in tandem with a fall in gasoline and distillate supplies.
Investing.com - Oil prices traded higher on Thursday as China de-escalated trade tensions with Washington, confirming preparation talks for renewed trade negotiations and calming fears that the dispute would slow the world economy even further.
Oil futures post a gain on Wednesday after U.S. government data reported a weekly drop in U.S. crude supplies—the largest in five weeks—along with declines in petroleum products, which helped to ease concerns surrounding a slowdown in demand.
U.S. crude oil inventories fell sharply last week to their lowest since October last year as imports slowed, while gasoline and distillate stockpiles also declined, the Energy Information Administration said on Wednesday. At 427.8 million barrels, U.S. crude oil inventories were at the five year average for this time of year. The decline was broadly in line with an 11 million-barrel draw reported by trade group The American Petroleum Institute on Tuesday.
Investing.com - Oil prices climbed Wednesday as a large drawdown in U.S. crude supplies and products overshadowed a surge in U.S. output to record levels.
Oil futures climb on Tuesday, with U.S. prices up by more than 2% on the back of significant output cuts by major oil producers in July and expectations for a drop in weekly U.S. crude supplies.
Investing.com - Oil prices jumped more than 1% on Tuesday as Iran put an abrupt end to hopes of a rapprochement with the U.S. and OPEC issued a report suggesting that its members and allies are still showing discipline in holding output back from the market.
Investing.com - Oil prices dipped slightly on Tuesday, following the prior day’s surge, as the lull of news on the U.S.-China trade front kept big moves in check and markets prepared for weekly data on U.S. crude inventories.
Investing.com - Oil prices traded higher on Monday, lifted by positive remarks on Sino-U.S. trade talks and by reports of a new drone attack on an Saudi Arabian oilfield.
After all, the largest consumers of diesel fuel in the U.S. are transportation providers such as trucking and rail companies, whose primary purpose is to move freight. As they consume more fuel, demand increases, which puts upward pressure on the price. This is certainly a bit of an oversimplification as there are other factors involved such as taxes and production cost, but the general direction is clear, as freight demand increases so does the price of diesel.
Investing.com - Crude prices managed to edge higher on Friday despite a report showing the weakest growth in oil demand in 10 years, as expectations of additional Saudi-led supply cuts supported bulls.
Investing.com - Oil prices broke a five-day rally on Thursday as the Federal Reserve's first interest rate cut in a decade disappointed speculation on more aggressive action, pushing the dollar higher.
U.S. crude stocks fell by nearly 11 million barrels last week even as refineries cut output, following a similar report from a key industry group, the Energy Information Administration said on Wednesday. Crude inventories fell by 10.8 million barrels in the week to July 19, compared with analysts' expectations for a decrease of 4 million barrels. Brent crude gained 56 cents to $64.39 a barrel as of 10:54 a.m. EST (1454 GMT), while U.S. crude rose 61 cents to $57.38 a barrel.
Production shut-in and loss of imports forced by Hurricane Barry led to the stockpile draw with the world's biggest oil consumer even as lower refinery crude runs capped the decline.