Brent was trading at $64.62 per barrel at 6.50pm UAE time on Tuesday, down 7 per cent after Reuters reported that Saudi Arabia could soon restore 70 per cent of the 5.7 million barrels of production lost in last weekend's missile attacks on two facilities.
The European benchmark closed at $69 per barrel on Monday, 14 per cent higher than its previous close after markets priced in a geopolitical risk premium as the world’s largest oil exporter faced the biggest disruption in its history.
The outage, which took 5.7 million barrels per day (bpd) of Saudi production offline, raised concerns in the global oil markets about the reliability of the kingdom's crude, which has been a stable source of supply for a long time.
West Texas Intermediate was also 6 per cent lower at $58.99 per barrel at 6.56pm UAE time. The benchmark, tracking largely North American crude, closed at $62.90 per barrel on Monday, 13.5 per cent higher than previous close.
The oil markets reacted in shock as the armed drones hit at the centre of the Saudi oil industry in the Eastern Province, home to the world's biggest fields, damaging a substantial portion of a 7-million-bpd capacity oil stabilisation facility at Abqaiq. The unit, which "sweetens" sour crude, is the world's largest when operating at capacity. The Khurais oilfield located 200 kilometres south-west of Abqaiq was also attacked, after which around half of gas output was also shut down.
Saudi Aramco has yet to release a detailed assessment of the attack but it is estimated to be facing weeks, perhaps months, of lower production capacity.
The kingdom, which accounts for 10 per cent of global output, maintains an inventory level of at least 187 million bpd, sufficient to cover around 28 days worth of exports.
Facts Global Energy in London expects the outages "to last months, not weeks, and will probably result in a large drawdown in strategic reserves".
The consultancy also expects the Abqaiq facility to run at a quarter of its capacity until November because of the extent of the damage. Production could eventually be ramped up to 50 per cent until December, with full capacity restored by the year end.
"On this basis, we expect Saudi Arabia crude oil production to languish around 6 million bpd until November, rising to around 8 million bpd in November before possibly recovering to normal levels by year end,” Facts Global said.
