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October 4, 2019

Saudi Arabia restores full oil output after attacks, focused on Aramco IPO

Business

October 4, 2019

MOSCOW: Saudi Arabia has fully restored oil output after attacks on its facilities last month and is now focused on the listing of state oil giant Saudi Aramco, Reuters quoted the kingdom’s energy minister Prince Abdulaziz bin Salman as saying on Thursday.

The kingdom’s crude oil production capacity is now 11.3 million barrels per day, he said, adding that the attacks, which halved the crude output of the world’s top exporter, were an attempt to ruin Saudi Arabia’s reputation as “a reliable, secure and dependable oil supplier”.

“We all rose to the challenge,” he told a Moscow energy conference. The Sept. 14 attacks targeted the Abqaiq and the Khurais oil plants, causing a spike in oil prices, fires and damage and shutting down 5.7 million bpd of production, or more than 5 percent of global oil supply.

Saudi Arabia has managed to maintain supplies to customers at levels before the attacks by

drawing from its huge oil inventories and offering other crude grades from other fields, Saudi officials have said.

“We have stabilized production capacity, we are at 11.3 (million bpd)... We still have the kit and the tools to overcome any future challenges,” Prince Abdulaziz said. One of challenges for the kingdom now was the listing of Aramco, a centrepiece of Saudi Arabia’s plans to reform its economy and diversify away from oil, he added.

“We want to make sure that it is the most successful IPO,” he said, adding that the kingdom is working on diversifying its energy resources and adding both renewables and nuclear power. “As far as I am concerned... we moved on, we flipped the page and (are) rising up to the new challenge,” he said.

Bankers from around 20 international and domestic financial institutions are now working a plan to sell about 1-2% of Aramco by 2020-2021 in Riyadh, before an international listing, sources have told Reuters. Prince Abdulaziz, a veteran oil official and a son of the king, was last month named as the kingdom’s energy minister.

Meanwhile, Reuters quoting industry sources reported that Saudi Arabia is expected to hike its prices for all crude grades it sells to Asia in November after the Sept 15 attack. The official selling price (OSP) for flagship Arab Light crude in November is expected to rise by at least 50 cents a barrel from the previous month to the highest since July, a Reuters survey of sources at five Asian refineries showed.

The strike against key Saudi oil processing facilities on Sept. 14 caused the kingdom’s output of Arab Light and Arab Extra Light to fall by half or 5.7 million barrels per day.

The disruption forced state oil company Saudi Aramco to draw down inventories, switch grades, delay loadings and cut domestic refinery throughput to meet supply commitments to customers.

Cash Dubai’s spot premiums were on average 65 percent higher after the attack, and DME Oman’s premiums were up 29 percent on average, Reuters calculations showed. Spot premiums for Abu Dhabi’s Murban crude, a key indicator of light sour oil prices in Asia, also surged to their highest since 2013 right after the attack.

Still, a faster-than-expected resumption in Saudi Arabia’s production brought output back to levels from before the attack and led to expectations of a tempered price increase, the sources said.

“If the price hike for AL (Arab Light) is higher than (the forecast of) 50 cents, it could support the view that AL production might not have recovered fully,” a source with a North Asian refiner said.

The respondents said it was harder to forecast the Arab Heavy crude OSP for November because of volatile fuel oil cracks and as Saudi provided additional supplies to some Asian buyers.

Saudi crude yields a big portion of fuel oil but margins for the refining residue swung between minus $12 and plus $4 a barrel in September due to the Saudi attacks, as well as to expectations that demand for the fuel will shrink ahead of a change to lower-sulphur fuel for ships from 2020.

Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia.

State oil giant Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.

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