LONDON: Oil power Saudi Arabia stands willing to make up lost supplies from BP’s closure of its giant Alaskan oilfield, but it may not need to.
Much depends on how long the 400,000 bpd Prudhoe Bay oilfield stays off-line. BP has not given a clear timeframe, saying only that it could be weeks or months.
“Prudhoe Bay will be a barometer. If the Saudis feel the market is truly oversupplied, then perhaps there won’t be a full response,” Mike Wittner of Calyon said yesterday.
“They don’t want to have a wall of crude on the water and then be surprised by a quick restart.”
The world’s top oil exporter has cut output sharply in recent months to prevent a potential glut after more than a year of heavy pumping from the Organisation of the Petroleum Exporting Countries.
Bulging US stockpiles of crude and products – and particularly in California where most of Alaska’s crude is consumed – means there is no need for refiners to panic.
“They can afford to secure supplies in a deliberate fashion,” said Wittner.
But other analysts are unconvinced of the market’s oversupply.
“There has been little inventory build at the global level in the second quarter,” said Kevin Norrish of Barclays Capital. “The market is pretty tightly stretched right now.”
An early indication of whether Riyadh will ramp up supply will arrive later this week when buyers of Saudi crude receive their monthly volumes from Saudi Aramco.
Saudi Arabia tells its customers around a month in advance how much oil they will be getting and its supplies take four-to-six weeks to reach the US West Coast.
“Saudi Arabia and other Opec producers are willing and capable of replacing any missing oil when the market demands it,” a senior Opec delegate said on Monday.
In contrast to the situation in Nigeria, where more than 700,000 bpd of easy-to-refine sweet crude has been lost, the Alaskan closure, caused by a rusted pipeline, has deprived the market of sour oil, which has a high sulphur content.
Saudi oil is a similar quality and could easily replace it.
And with pumping at just over 9mn bpd, the kingdom has well over 2mn bpd to spare.
BP began turning off the taps on Sunday at Prudhoe Bay, which is the largest oilfield in the US and pumps 8% of domestic output.
“Net, the current outage is being driven more by the risks of a larger spill than by current physical damage,” said a report by Goldman Sachs.
“This suggests that the most optimistic restart would likely be in the next two weeks, which would have a minimal impact on the markets.”
Seeking to reassure, Washington said it was prepared to release crude from its Strategic Petroleum Reserve to supply refineries on the West Coast.
Prices on Monday hit a new high of $78.64 for Brent crude in reaction to the BP shutdown.
“The US decision to offer SPR crude helps neutralise the situation,” said Lawrence Eagles, head of the International Energy Agency’s Oil Industry and Markets division.
“And Saudi Arabia has cut output recently by about 500,000 bpd – so there could be some offset from there.”
Extra Saudi oil appears the more likely scenario, since crude from the SPR would have to be shipped to the West Coast.
“While the SPR could easily replace this oil, it is not logistically or economically favourable to do so,” said the Goldman Sachs report. – Reuters |
