Interesting article below from HFI regarding WTI prices and demand for light sweet crude in Q4:
https://seekingalpha.com/article/4293786-saudi-arabia-oil-outage-demystified-take-impact-global-oil-markets
Extracted below:
Since the attack on Saudi's Abqaiq plant, we've read dozens of commentary from both ends of the extreme. On one end, some commentators suggested that the impacted production would be out for months. And on the other end, Saudi source leak through the media said production would be restored in 2-days. After 10-days, it appears the side that was the most accurate was the middle ground. We follow the Middle East and oil expert, Anas Alhajji, very closely and his insights have been spot on since the news came out.
So what are the real takeaways from this attack and what does it mean for the global oil market?
1. Saudi's crude exports have not been meaningfully impacted.
Saudi's crude exports for September remains steady around ~6.3 to ~6.4 mb/d. This was the originally targeted level for September as Aramco withheld ~700k b/d of nominations from customers to tighten the global oil market.
Some tanker tracking firms have taken this as a sign of Saudi's inability to supply the market, but instead, Saudi has been supplementing exports via drawdowns in storage.
As for October crude exports, we are seeing low levels at the moment implying a value between ~6 to ~6.3 mb/d. Again, this was already intended from the start as to continue to tighten the global oil markets.
2. Refinery margins have skyrocketed as Saudi diverts crude from the refinery to exports.
Saudi has cut refinery throughput by 1 mb/d, which has, in turn, spiked global refining margins. Chinese teapot refineries saw Dubai hydroskimming margins 3x over the course of a week. This implies a very strong throughput in Asia, which would, in turn, result in higher crude demand.
3. Crude quality issue gets worse with global light sweet crude shortage worsening.
Abqaiq processes most of Saudi's production into Arab light and Arab extra light with API gravity of 33 to 38, respectively.
As we head into IMO 2020, simple refineries will increase throughput to produce more low sulfur fuel oil, but because they are not equipped to process heavier crude like complex refineries, light sweet crude is the go-to.
As a result, we are seeing US crude export arb spreads skyrocket into year-end implying very elevated US crude exports.
In addition, because Abqaiq processing plant will take months to fix, the crude quality issue will persist implying that the light sweet crude balance could worsen even further as we head into 2020.
4. Spare capacity might not be at full by November.
Another point that Anas has pointed out over the last several weeks is that Saudi's spare capacity of ~12 mb/d might not be readily available following this attack.
What Is The Real Impact To The Global Oil Market?
At the moment, the impact to the global oil market is that global products are now net short ~1 mb/d. The refinery throughput cut in Saudi is real and Saudi is now looking to buy on the spot market for its refined fuel needs.
The chain reaction to this is that refining margins have skyrocketed implying higher crude demand for the refineries that can ramp-up throughput.
This has, in turn, translated to very elevated US crude export arbs, which will support the US crude export volumes into year-end.
As US crude exports increase and US crude imports remain around ~6.5 mb/d, US crude storage draws will accelerate when refineries ramp-up throughput again in November. At the moment, the sensitivity of the drop in US crude storage puts the range between ~350 to ~380 mbbls depending on your US crude export assumption.
The change in US crude storage will also be a good bellwether indicator for the rest of the world storage. We think the rest of OECD will account for the other half while US drops ~40 to ~70 mbbls by year-end.
So for the time being, the impact is being felt first in the refined product market, which is contrary to a lot of people's initial perception of the situation. But this will soon flow into crude prices as crude demand increases and crude storage drops.
(20min delay)