Oilfield service providers are recording a brisk trade in Saudi Arabia as Opec¿s largest producer invests to keep its facilities in shape to meet any added demand arising from sanctions on Iran.
Iran sanctions spark brisk Saudi trading
Oilfield service providers are recording a brisk trade in Saudi Arabia as Opec's largest producer invests to keep its facilities in shape to meet any added demand arising from sanctions on Iran.
"When I go to Saudi Arabia, the message is very clear," said Nabil Alalawi, the chief executive of Al Mansoori, an energy services company based in Abu Dhabi. "Bring as much equipment and people as you can and we will give you work."
As the market remains jittery over the prospect of a drastic cut in oil exports from Iran, Saudi Arabia has repeatedly pledged to make up any shortfall. It has also started to ensure it can match its words with action.
"Saudi Aramco's huge surface facilities allow oil production to be increased almost immediately if needed," said Bill Farren-Price of the consultancy Petroleum Policy Intelligence, based in the UK."The increase in rig numbers and oil service operations is part of a broader effort to maintain and keep that capacity available through well workovers, maintenance as well as Aramco's exploration programmes,"
The tension surrounding Iran has contributed to a rise in the oil price throughout last year, and in the first quarter of this year.
Brent, the benchmark for crude in Europe, traded at about US$125 a barrel yesterday, compared with an average of $109 last year.
The high price of oil has led to a surge in investment in oil production worldwide - and created bottlenecks in the supply of equipment and manpower.
"I want to get more equipment and people, but I cannot find them. Every one of my competitors is in exactly the same position," said Mr Alalawi.
Saudi Arabia has repeatedly pledged to make up for any shortfall in exports from Iran, which delivered about 2 million barrels per day (bpd) to the international markets before the sanctions. With a total production capacity of 12.5 million bpd, and current production at about 10 million bpd, the Saudis can in theory make up any loss of Iranian crude single-handedly.
Last week, PetroLogistics, a consultancy based in Switzerland, estimated exports out of Iran had declined by 300,000 bpd last month.
Some observers have doubts about the volume of Saudi spare capacity, with Barclays Capital estimating that an increase in production within a three-month period - the definition of spare capacity - is limited to 1 million bpd.
Increasing domestic demand in Saudi Arabia will further limit exports.
"While headline Saudi production will likely continue to rise from here, it may well jar with continued market tightness," Barclays Capital said in a report.
Oil prices are starting to undermine demand, according to Petroleum Policy Intelligence, making it less likely that Saudi Arabia will have to play the role of producer of last resort.
"With the sanctions on Iran expected to be of limited impact and duration, there is no immediate expectation that Saudi Arabia will need to make good on this pledge," said Mr Farren-Price.