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$ 300 oil: What if the attacks in Saudi Arabia had destroyed production?



Saudi Arabian Crown Prince Mohammed bin Salman (MBC) told CBS that oil could reach "unimaginably high numbers" if a war with Iran broke out, which he suggested if "the world does not become strong and firm" Measures to deter Iran.

While MBS is known to be hyperbole about the threat posed by Iran, recent events indicate that it may have a point here. But what are these unimaginably high numbers that he suggests? $ 100 a barrel? $ 300 a barrel? And what would the world look like when prices really went up?

The recent drone strikes on Saudi Aramco's oil facilities, in which 5.7 million bpd went offline, were largely attributed to Iran ̵

1; even though the Houthis took responsibility for it. This attack proved that Iran has the resources to strike at the heart of the Saudi oil structure, and it is reasonable to assume that a strike against these facilities could be far more devastating. In this scenario, these 5.7 million bpd could be permanently disconnected – putting the global oil industry in a very precarious position.

Although this may be a hypothetical scenario, the attacks of September 14 were demonstrably possible, and given these attacks, MBS's words can be fully understood. A destructive attack that permanently puts nearly 6 million bpd in oil production out of service would certainly have a far deeper impact on oil prices than the actual attack on Saudi assets. After the attack, Brent briefly crossed the $ 70 per barrel mark and then quickly withdrew on assurances from Riyadh. Then the international benchmark rose sharply again, albeit not so high, as reports surfaced that repairs could actually take months instead of weeks. But in the end, the panic was short-lived, and as recent news of Saudi Arabia's ability to get production back online quickly, oil prices fell again, almost as if it had not happened at all.

Days Later Some analysts forecasted 100-dollar Brent prices, but there were also more sober opinions that there was no reason for such a high oil price increase as some OPEC + members could increase production and US shale would do the rest. But this reliance on US shale and other OPEC members may be a bit optimistic in such a scenario. Related: Do not expect oil prices to rise much higher this year.

Iran and the UAE are the two OPEC members with the highest potential spare capacity war, they would probably see their production drop even further. This means that almost the entire 5.7 million bpd would have to be replaced by the US, which even the most passionate slate fan would hardly believe.

The United States has increased production significantly in the last year, but this time upwards momentum can not be sustainable. In its recent Short-Term Energy Outlook, the EIA estimates that production will increase by 1.2 million bpd from 2018 onwards. However, growth has been tempered by the recent poor performance of some of the most promising slate basins in the US.

The reality is there is not a single oil producer that could increase production by 6 million barrels a day, and these 6 million barrels a day are realistically a conservative estimate if a full-blown war were to take place.

If 6 million barrels or more would be taken off the grid For a significant period of time, which could range from the realistic possibility of blocking the Strait of Hormuz to a renewed attack on the Saudi Aramco oil infrastructure, oil prices would indeed abate rise to an "unimaginable level".

It is unclear when production could start resuming an insane mess to see who could reverse the weakness – not to keep prices low, but to see who could steal market share. Countries would undoubtedly do their best to boost production, but that would be insufficient. The global strategic oil reserves would all be used to supply the market, but this is a very short-term solution.

Large oil consumers like China and India are desperately looking for alternative suppliers. More importantly, these large consumer countries would come under pressure if the price of oil rose above $ 100. It's hard to tell how much oil China has in stock and whether they can cushion the blow, but they would use up everything they had quickly.

India is already trying to replenish its stored oil to prepare for difficulties in the Middle East, and work is underway to build additional storage sites to be completed next year. India's goal is to store 90-100 days of oil to maintain its 80% import rate.

Chinese data is dimmer, but it is generally acknowledged that China has topped up its stored oil by taking advantage of its moderate oil prices. Related: Great oil fights for his life

Japan and South Korea are also large importers, with Japan having considerable reserves near 300 million barrels. The long-term reality of the oil markets would keep prices extremely high until the new production went online or until demand was destroyed.

But how high could oil prices really be? In the case of a 6-month break of 6 million bpd, an oil price of $ 100 seems quite possible. But what if the Strait of Hormuz with 20 million bpd for some days or even weeks is cut off? Or what if production capacity is disrupted in several other Gulf states? A supply crisis of 20 million bpd could potentially supply oil for $ 300. But oil prices do not have to rise so high as to seriously boost high-consumption economies.

India quickly raised the alarm each time Brent rose above the $ 80 pain threshold. This would inevitably lead to demand problems. We have already seen this several times: oil prices are rising, demand is falling, oil prices are falling, demand is rising and then the global economy continues to grow.

The world's largest oil consumers would find it hard to sustain growth when oil trades near $ 100, let alone when oil trades at $ 200 or even $ 300 a barrel. And the time it would take for the price of oil to go down would be painful.

Given this historical evidence, the barely perceived warning of MBS to the oil price may be largely considered saber-rattling, but the prospect of "unimaginable" high prices may not be as far-fetched as some analysts believe.

By Irina Slav for Oilprice.com

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