Ann: BOARD UNANIMOUSLY RECOMMEND RE-DOMICILIATION AND US LISTING, page-148

It's a time thing.  Longer the repair the steeper the impact.

• A very short outage – a week for example – would likely drive long-dated prices higher to reflect a growing risk premium, although short of what occurred last fall given a debottlenecked Permian shale basin, a weaker growth outlook and prospects of strong non-OPEC production growth in 2020. Such a price impact could likely be of $3-5/bbl.
• An outage at current levels of two to six weeks would, in addition to this move in long-dated prices, see a steepening of the Brent forward curve (2-mo vs. 3-year forward) of $2 to $9/bbl respectively. All in, the expected price move would be between $5 and $14/bbl, commensurate to the length of the outage (a six month outage of 1 mb/d would be similar to a six week one at current levels).
• Should the current level of outage be announced to last for more than six weeks, we expect Brent prices to quickly rally above $75/bbl, a level at which we believe an SPR release would likely be implemented, large enough to balance such a deficit for several months and cap prices at such levels.
• An extreme net outage of a 4 mb/d for more than three months would likely bring prices above $75/bbl to trigger both large shale supply and demand responses.

Finally, here is a recap of events that took place over the past 36 hours from Goldman's sales team:
Following on overnight events / earlier WSJ article, please find additional color from the desk below. Note, we will have desk coverage starting at 6pm EST on Sunday.
Summary of events:

• Saudi Arabia has shut down approximately half (5 mb/d) of its oil output after coordinated drone strikes have hit Saudi oil processing facilities at Abqaiq (7 mb/d capacity) and Khurais (approximately 1.5 mb/d production capacity of Arabian Light). This facility is about 70 km from Dhahran, the headquarters of Aramco, and 328 km to Riyadh. (https://www.cnbc.com/2019/09/14/saudi-arabia-is-shutting-down-half-of-i…)
• Houthi rebels have taken responsibility for the attack and stated that it occurred through firing 10 drones. Official Iranian representatives have remained silent, and Saudi coalition leadership said investigations are underway to identify the perpetrators. News outlets have flagged that some of the missiles that crash-landed (i.e. did not strike their targets) were linked to “IRGC proxies.” (https://www.cnn.com/2019/09/14/middleeast/yemen-houthi-rebels-drone-att…)
• Israeli representatives have also remained quiet (note: Israeli election is on Tuesday - https://www.nytimes.com/news-event/israel-elections-2019).
• US has yet to officially respond but Secretary Pompeo tweeted “Iran behind nearly 100 attacks on Saudi Arabia, says "no evidence" drone attacks on oil facilities in Saudi Arabia came from Yemen” and called for Iran to be “held accountable” (https://www.wsj.com/articles/drone-strikes-spark-fires-at-saudi-oil-fac…)
• Given the importance of Abqaiq in Aramco infrastructure, it has been a target of several prior Houthi attacked but prior to these events was unaffected in recent years. (https://www.aljazeera.com/news/2019/09/timeline-houthis-drone-missile-a…)
• Saudi has noted that exports will be unaffected by production shut-off (drawing on existing commercial inventories) and also stated that production would renormalize by Monday. Saudi crude stocks are currently at 76 mb (near the highs of the year of 78 mb – chart below of closing stocks per JODI). - https://www.wsj.com/articles/saudi-officials-say-oil-production-to-retu…
• IEA is monitoring the situation in Saudi and says commercial stocks will enable market to be well-supplied. (https://www.reuters.com/article/saudi-aramco-iea/iea-says-oil-markets-w…)

Quick market recap:

• As of Friday’s close, Nov BRT settled $60.22. 1m ATM BRT vols were around 31.3%. Call skew was around -1.8v in 1m BRT. This is about 10 vols lower than the 6m high and 4.8v lower for skew in the same time-frame.
• As of last Tuesday, investors had added about 124k contracts WoW across the oil complex (51.6k in BRT alone) – however, the complex is still down 420k contracts YoY and -150k contracts in BRT net length.
• There is about 13k on $65 Call strike in BRT, 12k OI on $70 strike, and 17k OI on $75 strike (Nov options expire 25Sep).

Key questions from here:

• Please note there has been significant speculation as to the party/parties responsible for the attacks with no official conclusion or statement yet made.
• Will Saudi actually be able to return production by Monday / what is the extent of the damage at relevant fields, oil processing facilities (is there any permanent damage)?
• Will there be future attacks on key elements of Aramco infrastructure?
• Will Saudis respond / how?
• Was Iran involved in the attack, if so how (i.e. IRGC acting independently from official government action?)
• How does this affect Trump Administration’s stance on potentially softening Iranian sanctions - particularly given the domestic political implications of higher oil prices heading into the general election / recent headlines around NSA Bolton leaving the Administration (https://www.aljazeera.com/news/2019/09/bolton-fired-disagreeing-trump-i…)?

Relevant charts (Sources are GS Securities Internal unless otherwise stated. Past performance not indicative of future results).