Abu Dhabi, UAETuesday 22 October 2019

Who is in the position to plug a Saudi oil deficit and by how much?

The National takes a look at which producers can ramp up output to meet the 5% supply gap left in the markets following Saturday's attacks on Aramco facilities

Refineries and storage tanks in Texas. The US, the world's largest oil producer has said it could meet supply gaps, if needed. Bloomberg
Refineries and storage tanks in Texas. The US, the world's largest oil producer has said it could meet supply gaps, if needed. Bloomberg

Saudi Arabia’s supply outage took 5 per cent of global oil output offline and has raised concerns about how the markets could fill this gap in the near term. The world’s largest oil exporter has enough stocks to meet the loss for at least four weeks with production at half capacity, but it could be a while before Saudi Aramco's facilities are fully restored, and the kingdom may require some help to ensure market supply.

The National lists the top five producers who could step in and ramp up output, if needed.

US

US President Donald Trump has said he could open up his country’s strategic petroleum reserves, estimated at 645 million barrels, of which two-thirds are commercial stocks. The release of these stocks, however, could face “capacity constraints” due to the volume of crude that could realistically leave the storage caverns on a daily basis, according to UBS commodity analyst Giovanni Staunovo. The US is the world’s largest producer of oil and briefly overtook Saudi Arabia as the world’s biggest exporter in July. With more than half of Saudi output now unavailable, independent US shale producers have more flexibility to respond.

Russia

Russia is the world’s second-largest oil producer and is a member of the Opec+ alliance alongside Saudi Arabia that agreed to restrict 1.2 million barrels per day (bpd) of global output. Following the attacks on Aramco operations, Russian Energy Minister Alexander Novak said there were sufficient global stockpiles to cover the outage. Russian companies pumped 11.29 million bpd in August, higher than their stipulated quota. Moscow had pledged greater compliance and urged others in the group to adhere to their voluntary restrictions. Now that the global oil markets face a very different environment to the Opec meeting last week, it remains to be seen if Russia would still maintain compliance to the pact.

UAE

The UAE, Opec’s third-largest producer, has a production capacity of around 3.5 million bpd. The country's production was around 3 million bpd in July as it cut above the agreed Opec+ quota. On Monday, UAE Energy Minister Suhail Al Mazrouei said the country was ready to add capacity, if required by Opec, to support any deficit in the oil markets. As a close ally of Saudi Arabia, the UAE has also offered technical assistance for repair of the damaged facilities.

Kuwait

Kuwait is a significant producer within Opec, with the lowest break-even price for oil in the Arabian Gulf. The country, which is also part of the Opec+ deal, produced 2.68 million bpd in August, but has spare capacity of 470,000 bpd, which could be brought to market to meet supply needs. The country also shares a Neutral Zone with Saudi Arabia, from where production was halted in 2015 due to a dispute. The Khafji and Wafra fields in this area have a collective capacity of 500,000 bpd, which could possibly be resuscitated by both countries.

Iraq and Nigeria

Both countries have been violators of the Opec+ accord, producing at nearly 400 per cent above their quotas over the past month. At last week’s joint ministerial monitoring committee meeting of Opec, both producers vowed to fully comply from October 1 onwards. In August, Iraq, Opec's second-largest producer, had output of 4.7 million bpd and Nigeria had 1.8 million bpd.

Analyst Vandana Hari of Vanda Insights in Singapore expects some confusion to persist among producers as to whether they should ratchet up production or not, especially following the pledges made by all parties last week to stick to current cuts.

Updated: September 17, 2019 02:29 PM

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