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Saudi Arabia draws down oil stocks to maintain supply after attack

September 20/2019

MOSCOW (MRC) -- Saudi Arabia will try to maintain oil supplies to its major customers by drawing down crude stored at tank farms in the kingdom and in its global network while repairing and replacing installations damaged in the recent attacks, said Hydrocarbonprocessing.

Saudi Arabia reported domestic crude stocks of 180 million barrels at the end of July, government data supplied to the Joint Organisations Data Initiative showed.

Saudi Aramco, the national oil company, also maintains a few tens of millions of barrels of forward storage near its customers in leased tank farms in the Netherlands, Japan and Egypt. Aramco holds crude for strategic reasons to cover emergencies, and for operational purposes to ensure an uninterrupted flow of the right grades of oil to domestic refineries and overseas customers.

Domestic stocks were relatively low at the end of July, having fallen by 50 million barrels (22%) since July 2018 and by 150 million barrels (45%) from their post-slump swollen peak in October 2015.

The sustained drawdown over almost four years has left domestic stocks at their lowest level since 2007, numbers from JODI showed. At the end of July, stocks were sufficient to cover 18 days worth of exports, domestic refinery requirements and direct crude burning in the kingdoms power stations.

Forward cover is down from a recent peak of almost 33 days in October 2015 and is close to the lowest level for over a decade. Stocks should enable the kingdom to maintain supplies to customers in the short term until installations at Abqaiq and Khurais can be repaired/bypassed, or alternative production and processing capacity can be brought online.

Saudi Arabias energy minister said on Tuesday the kingdom had already managed to recover supply to customers to its pre-attack level by implication using stored crude.

The minister also predicted oil production would be fully restored to its previous level by the end of the month (Saudi Arabia to restore oil output fully by end of September, Reuters, Sept. 17).

But stocks can only cover a limited and fairly short loss of production, which underlines the importance of repairing and replacing Abqaiq and Khurais as quickly as possible.

The kingdom may also reduce its own refinery processing to prioritize crude for export and make limited crude stocks go further. Saudi Aramcos trading arm has reportedly been trying to buy diesel to offset reduced output from domestic refineries. 

Saudi Arabias crude stocks are performing their intended role to act as a cushion against an unexpected production loss but they buy only a relatively short amount of time to get production back to pre-attack levels.

As MRC informed earlier, Saudi Arabia will restore its lost oil production by the end of September and has managed to recover supplies to customers to the levels they were at prior to weekend attacks on its facilities by drawing from its huge oil inventories.

As MRC reported before, a number of Saudi Arabia's companies, such as Tasnee, Sadara, Advanced Petrochemical and Saudi Kayan, announced a curtailment of feedstock to their petrochemical plants, including polyethylene (PE) and polypropylene (PP) facilities, by an average of 30-50% due to the attacks on key Saudi Aramco facilities on Saturday.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,255,800 tonnes in the first seven months of 2019, up by 9% year on year. Shipments of all PE grades increased. At the same time, the estimated PP consumption in the Russian market was 796,120 tonnes in January-July 2019, up by 11% year on year. Shipments of PP block copolymer and homopolymer PP increased.
Author:Anna Larionova
Tags:petroleum products, crude oil, PP, PE, petrochemistry, Crude oil, Saudi Aramco.
Category:General News
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