Attacks on Saudi Oil – Why Didn’t Prices Go Crazy?


Energy experts and Scientists are like me They have always asked about the impact of a major attack on oil facilities in Saudi Arabia. For decades, the Saudis were the world’s largest exporter and swing producer, able to alter production to meet fluctuations in market demand. Will the attack on their oil lead to panic and skyrocketing prices?

Now there is an answer. The recent drone and missile attacks on Abqaiq, the largest Saudi oil processing center, caused the worst sudden supply disruption in history, putting it out of business. Approximately 6 million barrels per dayHalf of the country’s total production and about 5% of the world supply.

But not much happened in the aftermath. Renewed rhetoric and anger between Iran and the United States, a plan to deploy the United States “Air and missile defense” forces In Saudi Arabia, and promised US sanctions increase. However, there was almost no panic in the oil market. No price hike There is no sign of the stock market crashing.

To understand this, one has to look at how dramatically the global oil market has transformed in the past decade, particularly the role of the United States.

History is not a guide

We have seen the effect that oil shocks can have. The Iranian Revolution erupted from 1978-1979 About 5 million barrels per day or 9% of the global supply Out of the market, at a time when demand for oil was rising and the Saudis were not able to bridge the gap. Prices more than doubled and remained elevated for more than a year, driving up inflation and Bringing a new era of small vehiclesSave energy and reduce oil consumption. A decade later, when Iraq’s invasion of Kuwait pushed exports out of both countries, It amounts to 4.3 million barrels per day, Or 5% of global supply, the price hike was small and brief. The Saudis had more oil and were able to recoup the loss.

This history helps explain why, in the heat of this moment, some observers believed that the attacks on Saudi facilities in Abqaiq would drive up prices. 30% or more. Done world prices To $ 69 per barrel The day after the attacks, but quickly It drops to about $ 64Where they were for most of the summer.

Attacks on oil refineries, for which the Houthis claimed responsibility in Yemen, but the United States and Saudi Arabia were responsible for Iran, sparked tensions in the Persian Gulf.
Mandel Ngan / Baraka Photo via AP

To be sure, the geopolitical tensions have not subsided. The Trump administration blamed Iran for the attacks and spoke of A. Possible military strikePrompt, though Houthi responsibility in Yemen. Iran denied responsibility, while the Saudi government He insisted the country was wrong.

Despite the rattling of swords, the markets remained relatively calm. One reason may be that the Saudis appear to be able to divert enough oil from other sources To keep exports at pre-attack levels For a week or more.

Also, Pictures of the sites that were attacked It reveals a somewhat complex, precisely targeted process with significant but limited damage. The individual buildings were not destroyed, as shown in the photos More than ten spherical structures In which the ore is decompressed and explosive gases are recovered. The Abqaiq The processing center removes these gases and toxic hydrogen sulfide from the crude oil, making it safe for export. The limited nature of the damage helps explain the cause, according to Updates from the Saudi government in RiyadhLarge quantities can be recovered quickly.

Although, returning to full production may take longer than Two or three weeks are claimed by the SaudisThe notion that the country will struggle hard to maintain exports and that the oil market will suffer from anxiety seems overkill at best.

American power

The new reality of global oil supplies that has emerged recently explains why panic remains unlikely under the current circumstances. Central to this reality is the radical new role the United States is playing, and one that will not wane or weaken anytime soon.

In just six years, America’s production of crude oil has increased so rapidly that it has surpassed that of Russia and Saudi Arabia, as it increased from 5.5 million to 12.2 million barrels per day. It Expectations now To reach more than 13 million barrels per day in 2020. In addition to other petroleum liquids, especially those derived from natural gas, the total increases to 18 million barrels per day, a level not achieved by any country before.

The 40-year ban on oil exports was also lifted, a policy that Congress reversed in 2015. As a result, exports rose from nearly zero to nearly zero. More than 3 million barrels per day By mid-2019, overtaking most countries in OPEC Collection. One of the striking numbers here is that America’s need for crude oil imports has decreased from 60% to only 8%. In one decade.

What does this mean for the global market? Two things: that the world has gained a massive new source of supply, while a source of imports has long since declined. The overall effect was to maintain market supply better than in the past. Another effect has been to eliminate concerns about the global run-off of oil.

A drilling technology known as fracking has spread to the United States, including in North Dakota, which has led to an increase in domestic oil and natural gas production.
Jeff Wilson / FlickrAnd CC BY-NC-ND

What’s more, the historic concern in the US about “foreign oil” (and over-reliance on OPEC) has been wiped out. This has not stopped prices from fluctuating at times. But it did add a degree of stability to the background. Show is no longer controlled by authoritarian regimes.

If the attacks on Abqaiq had taken place 10 years ago, prices would have risen much more and not retreated quickly. Today, there is enough oil flowing into the world even for the Saudis To buy some From their neighbor Iraq to preserve their exports, with little effect on prices.

What’s Next?

There are no guarantees about the future. If President Trump orders a military response, and war breaks out in the Persian Gulf, it will have serious implications for the oil market. And more provocations from Iran Completely possible.

So far, the global oil market has been tested by this growing conflict and proven to be more resilient than it has been in the past. But it is clear that there are limits to the “game” being played.

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