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Page added on September 16, 2019

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Attacks in Saudi Arabia Are a Test of How Much the World Still Needs Its Oil

Consumption

How dependent is the world on Saudi Arabian oil?

That’s one of the many questions global oil markets are asking on Monday, after Saturday’s attacks on the Abqaiq oil refinery and the Khurais oilfield, the heart of the Kingdom’s crude production. The attacks highlight not just the rising tensions in the region, but serve as a timely reminder of the scale of Saudi’s contribution to global oil markets—they knocked out about half the country’s export capacity and around 5% of the world’s crude supply.

Alongside the geopolitical tensions—this is only the latest, but most severe, of several attacks on Saudi oil infrastructure in recent months—the fresh supply uncertainty sent oil prices bucking, rising as much as 20% earlier on Monday—the largest inter-day jump since the 1980s—before coming off slightly. On Monday morning, Brent was still up by around 11%, putting it on track for a two-month high.

But buried in those headline figures is an ongoing power shift: years into the shale boom, U.S. oil now makes up nearly 10% of the world’s oil supply (up from about 1% less than a decade ago), with production forecast to peak in 2030, according to energy consultancy Rystad.

A satellite image of Abqaiq oil refinery, in Eastern Province, Saudi Arabia. The refinery was hit by a drone attack over the weekend.
A satellite image of Abqaiq oil refinery, in Eastern Province, Saudi Arabia. The refinery was hit by a drone attack over the weekend. (DigitalGlobe via Getty Images)
DigitalGlobe via Getty Images via Getty Images

Meanwhile, since ending a 40-year ban on exporting crude in 2015, the U.S. has also frequently become a net exporter, though this varies month to month. In June of this year, for example, the U.S. was the source of about 12% of global crude exports, according to the Joint Organizations Data Initiative—though still far less than Saudi Arabia, with 23% of crude exports that month.

“The world is not even close to being able to replace more than 5 million [barrels per day] of Saudi Arabian exports,” said Bjørnar Tonhaugen, head of oil market research at Rystad Energy in Oslo. “The market’s reaction to Saudi Arabia’s importance, in the new era of U.S. shale, will now be put to the test.”

That’s, in part, a test of whether the U.S. can and will scale up exports in the short-term, if necessary. Tonhaugen notes that the U.S. is one of the only countries that can dramatically ramp up crude exports—even by as much as 1 million barrels per day, from around 3 million barrels per day at present—if needed to fill a gap in the market. (Russia, the UAE, Kuwait and Iraq could also increase output, Rystad estimates—but not at the same pace.)

However, that’s still not enough to completely take the bite out of a sudden drop in Saudi exports.

“The impact and the next course of action will depend on the duration of the outage,” said Vima Jayabalan, research director at consultancy Wood Mackenzie. “Saudi Arabia has enough reserves to cover the shortfall over the next week, but if the outage extends, then filling the gap with the right type of crude quality could be a challenge.”

Saudi Arabia has assured customers—around three quarters of its exports go to Asia—that it will meet contracts, by relying on large stock cushions parked not just in the country, but in storage in the Netherlands, Egypt and Japan. So a genuine shortage—rather than just a price hike—will ultimately be a question of how quickly Saudi Arabia can fix the damage.

The lingering lesson, meanwhile, will be whether the world needs Saudi oil quite as much as it used to.

fortune



12 Comments on "Attacks in Saudi Arabia Are a Test of How Much the World Still Needs Its Oil"

  1. Nostradamus on Mon, 16th Sep 2019 6:58 pm 

    “they knocked out about half the country’s export capacity.”
    They knocked out all of the country’s export capacity.
    It produces 10 million barrels a day but it consumes 4 million barrels a day leaving 5 million barrels a day for exports.

  2. Sissyfuss on Mon, 16th Sep 2019 9:43 pm 

    Limits to Growth is right on schedule and war is no solution. But it will still be tried.

  3. makati1 on Mon, 16th Sep 2019 10:45 pm 

    Nos, nice comment and correct. I have read numerous articles about the cuts and not one mentioned that fact. That is a disastrous cut in the SKA GDP. No money to pay for the failed American protection systems. It also looks like it will take months to get back on line…if there are no more hits. We shall see. lol

  4. Bloomer on Tue, 17th Sep 2019 12:09 am 

    Kind of saw this coming. The people in Yemen are starving and being pummeled by SA and their allies. They fought back as they are desperate,perhaps with the help or Iran but who knows.

    Violence brings more violence it’s a circle of death and destruction. Iran was complying with the nuke agreement,but the Hawks in Washington chose not to give peace a chance. Now chaos and the whole shit show in the middle East escalates once again. Oil has been a curse on the people in the middle east. The sooner the world weans off it, the better off they will be.

  5. Dooma on Tue, 17th Sep 2019 2:22 am 

    Nice post Bloomer. Unfortunately, peace does not pay well for defence companies and the US & Israel. It is boring for those people who are so wealthy that war is like a game of chess for them-except much more sadistic.

    On another note….that has to be one of the most idiotic story headlines I have ever seen..

    ‘Test of How Much the World Still Needs Its Oil’

    The world doesn’t need oil-it is oil.

    This may be proven quite soon.

  6. Robert Inget on Tue, 17th Sep 2019 9:58 am 

    TODAY’S Saudi press releases remind one of
    Monte Python’s ‘Knight Sketch’.
    “It’s only a flesh wound”

  7. Robert Inget on Tue, 17th Sep 2019 10:08 am 

    Stalin ‘helped’ fellow Communists in Spain’s ‘Civil
    War’ (1936/39) by sending endless copies of Karl Marx’s “Das Kapital”.

    Spain, not unlike today’s Syria, was a precursor
    to WW/2.

  8. FuleShortageComing on Tue, 17th Sep 2019 10:08 am 

    I like this twatter post from the Orange monkey he said:

    Because we have done so well with Energy over the last few years (thank you, Mr. President!), we are a net Energy Exporter, & now the Number One Energy Producer in the World. We don’t need Middle Eastern Oil & Gas, & in fact have very few tankers there, but will help our Allies!

    Translation, Israel and Saudi Arabia can go fuck themselves. He won’t do anything about it.

    He said we don’t need ME oil and gas. Translation. My energy advisor told my that ME oil is almost all depleted, low quality and diffucult to process. We don’t want your oil. We prefer other source such as Canada.

    He said we just have a couple a tanker in there. We are aware of peak oil and know exactly what is the current situation. The ME is now depleted. Go fuck yourself. Whites people never like Arabs anyway So happy now we don’t have to bossiness with you anymore.

    We will help our friend. We will weapons to Israel and any ME nations. We hope you all kill each other. The earth is too populate and nobody likes Arabs anyway.

    This is my interpretation

  9. Robert Inget on Tue, 17th Sep 2019 10:40 am 

    ‘Our’ US foreign policy today is up to anyone
    smart enough to articulate it.

    Watch Sec. Pompeo for a 2019 version of a Palace Coup. Turning US foreign policy over to MBS is a bridge too far, even for Republicans.

    Trump stated he would leave any response up to
    Saudi Arabia. The question, will the Saudis take on yet another losing war before resolving wars Yemen/Syria? In the opinion of every military observer, war between Iran and KSA involves
    just about everyone else. IOW’s ‘the end’.

    Keep in mind, striking Iranian bases in Iraq suspected of launching missiles at KSA could
    be the spark.

    The fact that BOTH oil hungry Pakistan and North
    Korea will trade nukes for oil is no secret.

  10. Robert Inget on Tue, 17th Sep 2019 10:45 am 

    Alberexit?
    Not unless Americans get universal health care good as Canada.

    Canada will be the last major oil supplier to abandon USD. If ever.
    China can’t compete with geography.

  11. James Eberle on Wed, 18th Sep 2019 12:01 am 

    Oil derived from shale(tight oil) doesn’t have the versatility of conventional oil. From it, you CANNOT make diesel, fuel oil, kerosene, jet fuel, or even the higher octane levels of gasoline without first mixing in a heavier oil source before refining. Because of its limitations, why is tight oil counted as if it was an equal substitute for conventional oil? I don’t get it.

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