What Happened Over The Weekend?
This image provided on Sunday, Sept. 15, 2019, by the U.S. government and DigitalGlobe and annotated by the source, shows damage to the infrastructure at Saudi Aramco’s Abqaiq oil processing facility in Buqyaq, Saudi Arabia. U.S. government | Digital Globe | AP
Saudi Oil Attacks
On Saturday September 14th, Saudi Aramco’ s Abqaiq facility and Khurais oilfield were attacked by an unconfirmed aggressor eliminating ~5.7 million barrels of production over the weekend. This accounted for ~50% of Saudi oil production and equated to ~5% of crude oil production globally. This was the largest attack on the oil infrastructure there since the 90’s when the Iraqi military fired scud missiles into Saudi Arabian kingdom.
Damage to the infrastructure at Saudi Aramco’s Abqaiq oil processing facility in Buqyaq, Saudi Arabia. U.S. government/Digital Globe | AP
Who attacked them?
While the Houthi Rebels have claimed responsibility, those claims do not quite add up. From the direction of attack (not Yemen as the rebels claimed), to the Iranian weapon technology recovered at the attack sites… something just doesn’t smell right. In any case, it is too soon to know with certainty who carried out the attack.
(if you recall the events surrounding the strait of Hormuz the Houthi rebels should sound familiar, if not read about it here in our previous blog! )
How is Saudi Aramco Oil recovering?
Since Wednesday September 18th, an estimated ~50% of the reduced production capacity has been restored by Saudi Aramco. There is speculation that production levels will be return to pre-attack levels within one month. Moreover, it is of note that Saudi Aramco reported having 35-40 days’ worth of supply available to maintain contractual obligations, and beyond that there are strategic petroleum reserves that can be brought into the market to prevent shortfalls.
How has this affected current/future oil pricing?
Immediately following the attacks, oil prices were up significantly and since then have retraced slightly but remain higher than pre attack levels. For example, WTI popped over $60 per barrel on Monday September 16th, and are still trading at the “geopolitical uncertainty” premium retaining ~+$4 barrel net gain.
While Saudi Aramco has been quick to respond and repair their facilities, the big question remains. How were they able to attack in the first place? Based on military statistics, Saudi has is ranked 3rd in the world for their defense spending. Therefore, in theory this could/should have been prevented. This unanswerable question tips the scale further into the “geopolitical uncertainty” train of thought and as a result we should expect to see a higher price per barrel depending on how this unfolds over the rest of the year and on into next.
Who said those options were worthless?
WTI Futures has an unexpected turnaround because of these events. As of Friday, there were ~ 62,000 outstanding calls with prices ranging from $55-60 per barrel; Higher than the 54.85 settlement. The price spike on Monday resulted in these “worthless” contracts being potentially worth millions overnight. Talk about one man’s trash huh…
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