The oil markets were in turmoil on Monday after the weekend’s attack on Saudi facilities, as refiners in top consumer Asia looked for alternative supplies, U.S. crude producers ramped up efforts to export crude and Saudi Arabia tried to secure refined products.
Crude prices surged by nearly 20 per cent on Monday, the biggest jump in almost 30 years, after Saturday’s attack cut output at processing facilities at Abqaiq and Khurais by a total 5.7 million barrels per day (bpd), knocking out half the kingdom’s production.
There was no indication on when output will be resumed by the world’s largest oil exporter, but two sources briefed on state-owned Saudi Aramco’s operations said a full return to normal production “may take months.”
While most countries have ample storage to meet immediate needs, companies are already planning for shipments for weeks and months into the future to make up for a shortfall in light crude and refined products, market participants said.
The lost Saudi crude oil output represents about 5 per cent of global crude supply. Analysts from research consultancy Bernstein said Saudi oil exports are mostly geared towards China, which takes about 1.7 million bpd, or nearly 25 per cent of Saudi exports.
Booking activity and freight rates for cargoes from the U.S. Gulf Coast rose over the weekend and on Monday, a ship broker said. U.S. physical crude along the Gulf Coast, which can be exported most easily, was in high demand, with premiums soaring to levels not seen since June for certain grades.
“The export window for U.S. crude is going to be wide open,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “You are probably going to see record amounts of U.S. exports.”
Booming shale production already allowed the United States to close in on and briefly overtake Saudi Arabia as the world’s top exporter of oil and refined products in June, after U.S. crude exports surpassed 3 million bpd, the International Energy Agency (IEA) said last week.
Asian refiners, the top destination for Saudi crude, can tap strategic oil reserves if necessary to cover 30 to 220 days of oil imports depending on the country, while oil product supplies are adequate for now as new refining capacity has been added this year, traders and market participants said.
China currently has about 325 million barrels of oil in its strategic petroleum reserves, enough for about 33 days of imports, according to industry estimates.
Arab Light and Arab Extra Light crude oil grades make up about one third of China’s total Saudi oil imports, according to Seng Yick Tee, a senior director with consultancy SIA Energy.
While newer refineries in Asia are able to process heavier crude grades should Saudi Arabia cut exports of its lighter crudes, it may not be quick or cheap.
Still, refiners in China do not seem worried about security of oil supply.
A company executive from Zhejiang Petrochemical, one of China’s two new mega integrated refineries, said inventories of crude oil were “comfortable” as it gears up for full production at its new 400,000-bpd plant in east China later this year.
South Korea said it would consider releasing oil from its reserves but did not anticipate any short-term impact on securing supplies. India said it was in talks with its refiners and Aramco.
For U.S. refiners, Saudi imports have accounted for just 3 per cent of feedstocks this year. Chevron Corp, Motiva, Marathon and PBF process the bulk of Saudi crude refined in the United States.
SAUDI PRODUCT IMPORTS
Two traders dealing with Saudi oil said Aramco’s trading arm Aramco Trading Company is already making enquiries about importing refined products, although the volumes sought were not clear.
“They are looking (for oil products) since they are trimming run rates at some of the refineries,” a Singapore-based trader said.
Industry analyst Energy Aspects estimates that about 1 million bpd of Saudi Aramco refining operations have been curtailed, releasing medium and heavy crude oil grades for export, with the state oil company likely to buy significant quantities of gasoline, diesel and possibly fuel oil.
France’s Total SA, which jointly owns the 400,000 bpd Satorp refinery on the west coast of Saudi Arabia with Aramco, bought at least three cargoes of diesel in the European market on Monday.
Total regularly delivers several cargoes of diesel from the refinery to Europe every month. The cargoes sold at the highest premiums to benchmark European ICE diesel futures since April, according to Refinitiv Eikon data.