Saudi Arabia attempted to move beyond the worst oil disruption in its history, assuring the world that crude exports will not suffer, its damaged facility had partially restarted and production capacity would be back to normal within months.
The long-awaited statement on Tuesday from the kingdom - which before the strike pumped almost 10% of the world’s oil - gives the market much-needed clarity after days of speculation over how severe was the damage at the Abqaiq plant.
However, it’s slower progress than was initially expected and crude prices remain elevated as traders factor in higher risks for Saudi supply.
“During the two past days, we managed to contain the damage by recovering more than half of the production that we had lost during that terrorist attack,” Energy Minister Prince Abdulaziz bin Salman said at a briefing in Jeddah. “Thus the company will be able to meet all its commitments to customers this month by drawing on its crude oil reserves.”
Abqaiq has restarted and is now processing about 2 million barrels a day, said Aramco Chief Executive Officer Amin Nasser. The facility should return to pre-attack levels of about 4.9 million barrels a day by the end of September, he said.
Soon after the weekend attack, officials indicated that the majority of output would be restored within days, with weeks required to get back to full capacity. That outlook became more pessimistic in subsequent days as photos were released showing the scale of the damage at the crucial facility.
The minister and CEO assured customers that Aramco’s crude exports won’t be reduced this month because it will draw down strategic reserves. The kingdom also temporarily reduced the rate at which its domestic refineries process oil by about 1 million barrels a day, making more crude available for shipment overseas.
Still, figures provided by the energy minister suggested the kingdom will take months to fully recover from the incident. Full output capacity of 12 MMbpd will only be available at the end of November, with about 11 MMbpd restored by the end of this month, said Prince Abdulaziz. Saudi Arabia aims to pump 9.8 MMbpd in October, he said, in line with recent months.
The oil market has been gripped with uncertainty since the attack -- initially claimed by Houthi rebels in Yemen, but later blamed on Iran by the U.S. Brent crude fell 5.7% to $59.31 a barrel in London as of 7:24 p.m. The international benchmark jumped the most on record on Monday.
That historic price gain underscored the unprecedented nature of the disruption caused by the attack. For decades, Saudi Arabia has been the oil market’s great stabilizer, maintaining a large cushion of spare production capacity that can be tapped in emergencies, such as the 2011 war in Libya.
The halt of 5.7 MMbpd of the kingdom’s production -- the worst sudden supply loss in history -- exposed the inadequacy of the rest of the world’s supply buffer. Aramco ramped up its offshore oil fields to maximum replace some of the lost production, Nasser said. Customers were also being supplied using stockpiles, though some buyers are being asked to accept different grades of crude, a person familiar with the matter said earlier this week.
But beyond the kingdom, other participants in the OPEC+ cuts, such as Russia, Kazakhstan and the United Arab Emirates, could restore a few hundred-thousand barrels a day of idled production, but not enough to offset the Saudi losses.
Even as Aramco fixes the damage at Abqaiq, the possibility of further escalation of conflict in the Middle East hangs over the market.
Tehran and Riyadh are historic foes that have been backing opposite sides in Yemen’s long-running civil war. The volatile situation in the region finally boiled over earlier this year as U.S. President Donald Trump used sanctions to attempt to choke off all of Iran’s oil exports -- which are the lifeblood of its economy -- after he unilaterally withdrew from an international nuclear deal.
Since then the Persian Gulf, source of about a third of the world’s seaborne oil exports, has been under siege -- targeted by air, sea and land. While Trump has shown some reluctance to go to war, there are also few prospects for easing tensions as Saudi Crown Prince Mohammed bin Salman decides how to respond to the assault.
Prince Abdulaziz said he wouldn’t comment on whether Iran was responsible for the attack. The Pentagon is preparing a report on who was to blame and intends to make it public within 48 hours, a U.S. defense official said on Tuesday.
Houthi rebels in Yemen, who are backed by Tehran, said on Monday that oil installations in Saudi Arabia will remain among their targets and their weapons can reach anywhere in the country. Iran’s supreme leader Ayatollah Ali Khamenei said on Tuesday that his country won’t negotiate with the U.S. on any level neither in New York or anywhere else.
The threat to key Saudi infrastructure has loomed over the planned initial public offering of Aramco. The state-run company will still be ready for a share sale any time in the next 12 months, Chairman Yasser Al Rumayyan said at the briefing.