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Global Oil Supply Suffered A Heart Attack:Will Recover Soon ?

On 14th September 2019 ,

There was an attack reported on Saudi Aramco facilities in Abqaiq & Khurais which was not confirmed for sometime but then the images of the facility started to pop up on the Twitter and later an official statement from the company & government came in.

Which mentions that 5.7 Mn b/d capacity has been impacted by the attack and will update on the restart of the facility within 48 hours.

Official Statement:

Why is Abqaiq so Important ?

The facility does the processing of hard crude to light crude with capacity of 7 million barrels per day this makes it the worlds most important facility as the majority of refineries over the globe depend on it has all of them can only refine light crude.

A global commodity research company Rapidan had released a report highlighting the importance of the facility and if attacked how it will be difficult to restart the unit.

Will the Oil Supply Get Impacted Immediately ?

The company & government has mentioned that is there is sufficient reserves with country to supply till the time the plant restarts. As per data there is 187 Mn barrels which can last almost a month or so till the processing restarts.

Aramco also confirmed to an Indian Refinery that there will be no immediate impact on oil supply as it will compensate the loss from other sources as it has sufficient reserves. (Based on Refinery Source)

How Will It Impact Currencies , Gold & Equities ?

Such an event will bring real geopolitical risks into all asset classes which were being reversed recently as the Trade tensions were easing.

In currencies INR & LIRA are the most vulnerable to such event which is supported by below data :

Gold is already pricing in central bank going for further easing as the growth momentum in throughout the globe is fading along with the hope of inflation increasing. With this event there will be increase in the premium of the geopolitical risk and further escalation of the attack. Today there was a gap up of 2% when Asian markets opened :

Equities have factored in a risk off trade coming back till the unit comes back online and the geopolitical risk does not go away. Saudi stock exchange opened -2.6% on Sunday factoring the attack & Global markets are -1% .

What Is The Latest Developments ? (Updated on 18th September 2019)

Post 72 hours of attack Saudi held a presser where Energy minister has mentioned below timeline and events which would according to us will only calm the nerves for short while till actual data of exports and production does not start to come.

- Abqaiq Restored 2.5Mn b/d till date with target of 11mn capacity by Sept. end & 12 Mn by November. - No export issues due to reserves present at the company level.

- IPO will depend on market conditions will be looking at it within 12 months.

On Ground :

- China has hired 4 vessels to import extra crude from USA

- India is in talks with Russia to increase the supply

- PetroChina shipment was not loaded from Saudi

- Saudi has delayed October shipment by 10 days

- Saudi is offering other variety of crude for balance September loading

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