September 14, 2019 / 6:31 PM / a month ago

INSTANT VIEW 2-Reactions to attack on Saudi oil facilities

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Sept 14 (Reuters) - Yemen’s Iran-aligned Houthi group on Saturday attacked two plants at the Abqaiq plant, the heart of Saudi Arabia’s oil industry, in a strike that could impact about 5 million barrels per day of crude production - close to half of the kingdom’s output or 5% of global oil supply.

Following are reactions to the attack:

U.S. AMBASSADOR TO SAUDI ARABIA JOHN ABIZAID:

“The U.S. strongly condemns today’s drone attacks against oil facilities in Abqaiq and Khurais. These attacks against critical infrastructure endanger civilians, are unacceptable, and sooner or later will result in innocent lives being lost.”

INTERNATIONAL ENERGY AGENCY, PARIS:

“The IEA is monitoring the situation in Saudi Arabia closely. We are in contact with Saudi authorities as well as major producer and consumer nations. For now, markets are well supplied with ample commercial stocks.”

SANDY FIELDEN, ANALYST AT MORNINGSTAR:

“It takes 19/20 days to ship Ras Tanura (Saudi) to Singapore, but 54 days from Houston to Singapore. So U.S. ‘relief’ will take time. The real issue here is how much stocks the Saudis have to supply the market until their production is fixed.

“The obvious short-term fix would be waivers on Iran sanctions, but politically that’s a hard pill for the Trump administration to swallow. By all accounts the Iranians have tankers full of storage ready to go.

“Many countries have strategic stocks for exactly this reason. The price (of oil) is going to jump all right, but the Saudis and U.S. have a day to run interference on their positions before then. The most scary result would be a Saudi escalation of the war in Yemen. Then the whole Gulf gets trigger-happy.” JASON BORDOFF, FOUNDING DIRECTOR, CENTER ON GLOBAL ENERGY POLICY, COLUMBIA UNIVERSITY, NEW YORK:

“Abqaiq is perhaps the most critical facility in the world for oil supply. Oil prices will jump on this attack, and if the disruption to Saudi production is prolonged, an SPR release from IEA members seems both likely and sensible.

“This is a reminder why, despite America’s becoming a net-zero oil importer, the SPR remains a key strategic asset. Sanctioned Iran supplies are another source of potential additional oil, but (President Donald) Trump has already shown he is willing to pursue a maximum pressure campaign even when oil prices spike.

“If anything, the risk of tit-for-tat regional escalation that pushes oil prices even higher has just gone up significantly. Will the Saudis feel the need to respond? Will the Americans? I don’t know, but the point is this: Every new attack increases the risks of an unintended escalation to military conflict as each side feels compelled to respond in some way to the preceding incident.”

ROBERT MCNALLY, HEAD OF RAPIDAN ENERGY GROUP, BETHESDA, MARYLAND:

“Today’s attack on the Abqaiq processing facility constitutes a paramount oil bullish, equity bearish, and global growth negative risk. Details are scarce, but early press reports indicate some 5 mb/d of Saudi production is impacted. The videos on Twitter suggest large-scale damage, though it is possible some of the fire is due to emergency flaring procedures associated with the shutdown. Aramco reportedly said it expects production to restart quickly, suggesting damage may be light. Even if that proves to be the case, such a brazen attack by an Iranian proxy on the crown jewel of the Kingdom of Saudi Arabia’s energy system will raise the overall geopolitical risk premium.”

JAMES KRANE, MIDDLE EAST ENERGY SPECIALIST, RICE UNIVERSITY’S BAKER INSTITUTE:

“This is a pretty serious escalation of the proxy war between Iran and Saudi Arabia. With something like this, we might see the U.S. get dragged in. Iran is telling us ‘you need to put us on the front burner.’ They’re not going to be put out of the picture forever. With (former U.S. National Security Adviser John) Bolton out, who knows? It is hard to see that Bolton’s departure isn’t part the calculus. Iran is stepping up what they see is its defense and looking for us to make the next move, and we’ve just fired the hardest line guy in the cabinet.

“Asian countries are more at immediate risk because they are the big importers from Saudi Arabia, with 80% of Saudi exports going to East Asia. For the United States, the main threat is in the price of oil, it’s not in the immediate supply.

“The asymmetry of this is obvious. You have one of the world’s largest consumers of advanced weaponry basically defenseless in the face of drones that cost less than $1,000 and from a country that is so poor and disorganized it is undergoing a cholera epidemic and widespread starvation.” JOSH YOUNG, CHIEF INVESTMENT OFFICER, BISON INVESTMENTS LLC:

“There has been nearly zero geopolitical risk in the oil market for a while now, partly because of OPEC ineffectiveness and partly because of shale production growth. This scale of production disruption and potential retaliation could reintroduce political risk and also drain inventories.

“It seems very likely that oil prices and related equities will rise if the multimillion-barrel-per-day production disruption is sustained for more than a day or two. And if it sustains beyond that, I don’t think the calls for $80+ oil in the short term are unrealistic.

“Speculative positioning in the financial markets are very low and inventories have been rapidly declining, especially in the past couple of months - oil prices may have risen even without this disruption.” ETHAN BELLAMY, SENIOR OIL AND GAS ANALYST, R.W. BAIRD:

“Crude oil should rally, the only question is by how much. There’s ample OPEC producer spare capacity to absorb what looks like a temporary glitch. A good analogy could be the drop in spot crude oil when John Bolton got fired, which removed a perceived geopolitical risk premium.

“An acceleration of asymmetrical attacks and their success could add back this risk premium. The attack should highlight the relative resilience of U.S. production: a diversified, distributed network of producers and assets in a highly stable region as opposed to a highly concentrated and besieged supply in the Kingdom.

“We could see modest outperformance for U.S. energy producers and logistics companies when stock exchanges open on Monday morning.” JAMES WEST, SENIOR MANAGING DIRECTOR, OILFIELD SERVICES ANALYST, EVERCORE ISI:

“This highlights the continued geopolitical tensions in the Middle East and should push oil prices higher. For service companies there shouldn’t be any impact.” (Reporting By David Gaffen in New York, Liz Hampton in Denver and Gary McWilliams in Houston Editing by Chizu Nomiyama)

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