Can Saudi Aramco make good on its promise to fully restore production by September 30?
That deadline is approaching fast and comes just 16 days after the attack on the Abqaiq processing facility and Khurais oil field damaged major pieces of infrastructure.
But the oil market remains skeptical Aramco can quickly fix the damage.
Any delays would mean Saudi Arabia has to keep dipping into its crude inventories to fulfill export commitments.
That process can’t go on forever, especially since Aramco has already begun to draw on Saudi inventories since the attacks.
Ursa measurements show Saudi crude inventories have fallen sharply since September 14.
As the graph below shows, total inventories for the sites we cover inside Saudi Arabia equaled 61.7 million barrels the week ending September 25.
That’s a decline of 9.2 million barrels compared with the week prior and a decline of 11.4 million barrels versus two weeks ago.
To put this into perspective, total Saudi inventories had averaged 70.3 million barrels in 2019 until the attacks. Inventories now sit 12% below that average.
The largest change we measured by site was Ras Tanura between September 15 and September 18. Inventories fell by 7.5 million barrels to 32.6 million barrels.
Another issue is the amount of storage that Saudi Arabia holds overseas. Aramco owns or leases tanks in at least three places outside Saudi Arabia -- Rotterdam, Sidi Kirir and Okinawa.
Rotterdam, one of the world’s largest ports, is the entry point for a major cluster of refineries serving Northwest Europe.
Sidi Kirir is the terminus of the SUMED Pipeline that traverses Egypt connecting the Red Sea with the Mediterranean, allowing ships to avoid the Suez Canal.
Okinawa is a strategic location given its proximity to Asian refiners, the largest segment of Aramco’s clientele.
At the time of the attacks, inventories in all three locations were within normal ranges seen over the last six months.
As a percentage of capacity, stocks in the Okinawa city of Uruma were approximately 75%, while Rotterdam and Sidi Kirir were both around 58%.
We’re monitoring those sites for unusual movements, such as large draws, but have yet to observe anything that could indicate Aramco moving barrels from storage.
Other places to watch are Kuwait, UAE and Iraq. These three countries have reportedly been approached by Aramco’s trading arm looking to buy more volume of crude than is normal.
Inventory levels in Kuwait, UAE and Iraq were around 50% capacity before the attack and haven’t budged much since then.
What do you think? Will Aramco be able to fix everything in time? Or is the next supply crunch around the corner when Saudi exports get slashed?
Keep reading to find out.