The disruption is “quite significant,” Mele Kyari, chief executive officer of state producer Nigerian National Petroleum Corp., told Bloomberg Television on Sunday. “If it’s protracted it could be a big challenge for the oil markets.”
The attack is the biggest on Saudi Arabia’s oil infrastructure since Iraq’s Saddam Hussein fired Scud missiles into the kingdom during the first Gulf War. The damage highlights the vulnerability of the Saudi industry that supplies 10 per cent of the world’s crude oil. The kingdon’s benchmark stock index tumbled as much as 3.1 per cent on Sunday in Riyadh.
Iran-backed Houthi rebels in Yemen claimed responsibility for the attacks, but US Secretary of State Michael Pompeo blamed Iran directly without offering evidence for that conclusion. Iran’s Foreign Ministry described Pompeo’s remarks as “blind and fruitless accusations.”
The Houthis, who are fighting Saudi-backed forces in Yemen, have claimed responsibility for most of the strikes against Aramco installations.
“Work is underway to restore production and a progress update will be provided in around 48 hours,” said Amin Nasser, Aramco’s president and chief executive officer. Aramco is working to compensate clients for some of the shortfall from its reserves.
Saudi Aramco, which pumped about 9.8 million barrels a day in August, will be able to keep customers supplied for several weeks by drawing on a global storage network.
The Saudis hold millions of barrels in tanks in the kingdom itself, plus three strategic locations around the world: Rotterdam in the Netherlands, Okinawa in Japan, and Sidi Kerir on the Mediterranean coast of Egypt.
The US Department of Energy said it’s prepared to dip into the Strategic Petroleum Oil Reserves if necessary to offset any market disruption.
Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, has been leading the group in production cuts to mop up a surplus of crude in the market. So when half of Saudi Arabia’s production is knocked out, the question is how long the disruption lasts.
“The global economy can ill afford higher oil prices at a time of economic slowdown,” Ole Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen, said in an emailed response to questions. So while a surge in prices driven by lower supply “may temporarily remove the focus on slowing demand, it could, if prolonged, potentially reduce demand growth expectations even more.”