World has sufficient oil reserves

World has sufficient oil reserves

Economy
17 September 2019, 15:04 50
The price of oil saw a massive price spike in global oil markets over the past few days. This spike was caused by drone strikes on Saudi oil facilities. Amid growing concerns about geopolitical risks, the price of Brent crude surged 10%, while the price of Light crude oil rose 9%. The cost of the Brent crude oil increased to record levels of $12 settling at $71. This figure is the largest short-term increase in the last three years. The attacks on the world’s largest and Saudi Arabia’s second largest oil processing plant in Abqaiq, resulted in a loss of the 5.7 million barrels of Saudi crude production which represents the largest production loss for oil markets. According to the International Energy Agency (IEA), this loss surpasses the decline in Iranian production during the Islamic Revolution in 1979. The state-owned oil giant Saudi Aramco is planning on restoring 1/3 of oil production but notes it could take weeks before it is able to restore full production at the facilities. Experts say this loss is about 5% of the world's crude production and will not pass without affecting the market. How will this commotion affect oil markets?
 
According to Zafar Valiyev, an expert on energy issues, the current situation in the oil market is due to the drone assaults on Saudi oil facilities. "Drones attacked the kingdom’s oil reserves and facilities in its eastern periphery. However, there is not enough information about the strike. That is why there is chaos in the market. We can see that the price of Brent crude ranges between $67-68. The cost of U.S. benchmark West Texas crude rose to $58. Interestingly, there were no significant changes in the price of OPEC basket of crudes which stood at around $60. The OPEC basket averages the prices from Iran, Iraq, Kuwait, Saudi Arabia, United Arab Emirates, and other OPEC member countries. No one knows how long it will take Saudi Arabia to recover in the aftermath of the attacks. But there should be no serious dissatisfaction with rising prices. Because after the incident, Saudi Arabia officials said there would be no significant changes in its export volume since alternative options are accessed when there are problems with the kingdom’s export terminals. Currently, Saudi Arabia has 188 million barrels of oil reserves for commercial purposes. Some of these reserves are located on the Red Sea coast, at the terminal in Egypt, some in the Baltic Sea, at the Rotterdam terminal, and the rest at the Akinawa terminals in Japan. Oil exporting countries keep commercial oil reserves both within their own country and in areas close to their customer markets. In this regard, Saudi Arabia has sufficient oil reserves both in Asia, Pacific energy region, North-West Europe and the Mediterranean coast. If it takes time to repair the damage then reserves at those terminals will be used,” he said.
 
Valiyev noted that Saudi Arabia has enough reserves to meet its demand for oil products, as well as to ensure the functionality of its thermal power stations. "In general, Saudi Arabia's refined oil reserves are close to 90 million barrels. The combined reserves of crude oil and refined oil products exceed 285 million barrels. I think that in this case there is no reason for serious commotion in the global oil markets. There are also reserved forces within OPEC. OPEC's daily production in August is estimated at 29.9 million barrels. In this case, other reserved options are available. As I previously mentioned, along with Saudi Arabia, there is an opportunity to increase the export volume of Iraq, the United Arab Emirates, Kuwait and other countries. The surge in prices in the market is short-term, and it has no serious basis. At any given moment, there are both resources and vast opportunities to supply global oil markets. From this point of view, I believe that the price increase will be short-term and prices will again stabilize. Currently, it is necessary to prevent price fluctuations in order to maintain balance in the global oil markets. Therefore, a two-day surge of $7-8 does not mean that the market will react to that price and that the current global economy will accept this. Therefore, oil prices should stabilize soon. This is in interest of both Saudi Arabia and other oil-producing countries, as well as consumer states,” the expert added.
 
Head of Oil Research Center Ilham Shaban said oil market participants do not yet know the scale of what is happening in Saudi Arabia and how much time is needed to recover from the current situation. "Oil prices will start to drop again after becomes clear. It may also rise due to the destruction possibly being large-scale in the attacked areas,” he noted.
 
Shaban stressed that, if necessary, pre-existing oil reserves could be used when needed. "The US has already opened its stockpiles to keep world markets supplied,” he added.
 
BAKHTIYAR