Russia To Wait and See On Saudi Supply Cut

Russian energy minister Alexander Novak has downplayed the impact on the recent attack on Saudi oil facilities on global supply security.

There is sufficient oil in storage globally to avoid supply shocks, the minister told reporters on September 16, according to Reuters. Asked whether Russia was prepared to ramp up its production, which averaged 11.27mn b/day in the first half of September, he said Moscow would wait for more information from Riyadh on the output disruptions.

“But currently, we understand that the world has enough commercial stockpiles to cover shortage... in the mid-term,” Novak said, noting he had a call scheduled with his newly appointed Saudi counterpart Prince Abdulaziz bin Salman.

The September 14 drone strike by Yemeni rebels on Saudi Arabia’s Abqaiq and Khurais oil facilities took out over half of Saudi oil production and more than 5% of global supply, causing oil prices to spike. Saudi authorities are yet to say how quickly production will recover to normal levels. Saudi Aramco is thought to have enough stocks at home and abroad to cover a month or so. But although it said on its website late September 14 that it would update the market in about 48 hours, it had not done so as of 12.20 UK time September 17.

Kremlin spokesperson Dmitry Peskov said separately on September 16 that Moscow would wait and see how the situation unfolds before making changes in production policy. Russia has relatively little room to expand output in the short-term anyway, with VTB Capital estimating in a recent note that the country’s oil companies would only be able to add 250,000 b/day of oil to the market within 12 months.

The drop in Saudi supply will have less of an impact on the European oil market, which is more reliant on Russian and domestic production rather than Middle Eastern supplies. This said, European buyers, like consumers across the world, will be stung by the higher prices. Asian markets more reliant on Saudi crude will be worse affected, especially China, where Saudi Arabia has been jostling with Russia for the position of top oil supplier for years. Any increase in exports that Russia can muster is likely to wind up there.