Saudi Arabia has recovered half of the oil production that was lost due to the attacks on its oil infrastructure over the weekend, and the kingdom said production will be fully restored by the end of the month, the Gulf nation says.
Saudi energy minister Prince Abdulaziz bin Salman held a news conference in Jiddah on Tuesday afternoon, and said Saudi Aramco's critical Abqaiq processing plant has restored 2 million barrels day that was lost due to the wave of drone and missile attacks on the Saudi oil fields. The energy minister said production will reach 11 million barrels per day by the end of September.
"The oil market has gone from pricing in the worst-case scenario, in terms of lost Saudi oil supplies, to one of the best case scenarios, considering the scope and scale of the attack," said analyst John Kilduff of Again Capital.
The kingdom will be producing back at the quota set by the Organization of the Petroleum Exporting Countries by the end of the month. It will restore its full capacity of 12 million barrels per day by the end of October, the energy minister said.
Crude prices abruptly fell nearly 6 percent Tuesday prior to the news conference on reports that indicated Saudi Arabia, a major global oil supplier, would recover from the attack sooner than expected.
Weekend drone strikes took out an oil processing plant and nearby oil field operated by state-owned Aramco, forcing the company to cut its output in half. That took 5.7 million barrels of crude out of daily circulation, or nearly 6 percent of worldwide consumption. Analysts said a quick resolution was crucial to ensuring against disruptions in the supply chain and a corresponding jump in fuel prices.
On Tuesday, Reuters reported that the world's second-largest oil producer would resume normal production within two to three weeks. The report, citing top Saudi sources who've been briefed on the matter, said Aramco already had restored nearly 70 percent of its lost oil production.
Aramco churned out 9.85 million barrels per day in August, according to the U.S. Energy Information Administration. The kingdom has the capacity to pump as much as 12 million barrels per day, making it the only nation with that level of elasticity.
Brent crude oil, petroleum's international benchmark, was trading near $65 a barrel, down 6 percent, as of 2 p.m. Tuesday. Brent had spiked nearly 20 percent to $72 per barrel in the wake of the attacks. West Texas Intermediate, the U.S. benchmark, was selling for $60 on the futures market, down around 5.3 percent from Monday's close.
The price swings illustrate the fragility of the world's oil delivery system. The world energy market is a complex balance that delivers 100 million barrels a day from a constellation of producers to virtually every corner of the planet.
Even before last week's attack in Saudi Arabia, it has been abundantly clear that the global supply is vulnerable to geopolitical disruption," said analyst Pavel Molchanov of Raymond James. "We have seen this during the Arab Spring with frequent disruptions in places like Libya. We have seen it for decades with rebel violence in Nigeria. And more recently, we have seen a production meltdown in Venezuela, which is happening for internal political reasons."
Shares of international oil companies - known as the supermajors - such as BP, ExxonMobil and Chevron were all trading slightly lower Tuesday afternoon. Companies that service and supply the supermajors also declined; Halliburton and Schlumberger Limited saw shares drop on the news of Aramco's quick recovery.
It is unclear whether news of Aramco's recovery timeline will stop the release of crude oil from the U.S.' Strategic Petroleum Reserve. On Sunday, President Trump announced via Twitter that he had authorized the release of a yet-unspecified amount of crude oil from the 600-million-barrel reserve to "keep the markets well-supplied." It takes 13 days for SPR oil to hit markets after a presidential decision.
Experts estimated that a protracted oil shortfall from Saudi Arabia could lead to higher pump prices, from 10 to 25 cents a gallon, depending on how long Aramco took to get its production back on track. The average gas price Tuesday in the U.S. was $2.59 per gallon, down 25 cents from a year ago.