Interesting Fallacies about The Oil Field Attacks
Early reports indicated that the attacks on two Saudi Aramco oil refineries resulted in reducing Saudi crude oil production by 5.7 million barrels per day.
Later reports indicated that two million barrels would be back in production within seven days, leaving world oil supplies short by 3.7 million barrels per day.
According to the International Energy Agency, global oil consumption reached 94 million barrels per DAY in 2018. Global oil production, however, surpassed 100 million barrels per day in 2018, which means that there is a built in global surplus of six million barrels per day
That’s almost exactly equal to the amount of oil supplies that were interrupted by the drone attack.
Oil prices surged by 20% immediately after the attack but retreated to a 10% increase within four hours, after the Saudis announced that 2 million barrels per day would be back in production within a week.
Questions for us to ponder:
If the amount of Saudi oil production that was curtailed by the drone attacks was LESS than the daily surplus in oil production, why did crude oil prices surge by more than 2o% immediately after the attack?
Why would the news that two million barrels per day would be back in production within a week cause a 10% retreat in crude oil prices when the amount of crude oil production that would be coming back online is only 35% of the total amount of production that was lost according to the initial reports? More specifically, why would a 35% increase in predicted oil production FROM THIS ONE SOURCE result in a 50% reduction in crude oil prices?
Responsibility for the attack was claimed by Yemen’s Houthi rebels, but Saudi sources are claiming that Iranian weapons were used. This is nonsense. There is no evidence left indicating where the drones or the explosives came from.
The Big Takeaway from this event: World oil supplies are extremely vulnerable. Saturday’s attack on the Iranian oil refineries comes just weeks after two oil tankers – a Japanese vessel called the Kokuka Courageous and one from Norway called Front Altair– were attacked in the Gulf of Oman on June 13, 2019. A month earlier, on May 12, 2019, four ships were attacked, a group that included two Saudi Arabian oil tankers, a Norwegian oil tanker and an Emirati “bunkering” ship from the United Arab Emirates. (A bunkering ship is a refueling tanker that services ships at sea by topping off their tanks. )
The May 2019 attacks were blamed on the Israelis by Iran. Similar claims were made about the June attacks. Israel has no grievances with Norway, and would not launch an attack against ships flying Norwegian flags. Similarly, although Israel and Saudi Arabia do not have official diplomatic relations, the Saudis, the Jordanians and the Israelis have informal, ongoing joint intelligence and diplomatic operations. (Jordan and Saudi Arabia are outliers among the increasingly radical Muslim nations, as traditional monarchies surrounded by radical regimes.)
The latest drone attacks on the Saudi Arabian refineries, coupled with Yemeni Houthi rebels claims of responsibility reinforce the conclusion that the attacks were all brainchildren of a Yemeni faction with ties to Iran, but it is clear that the attacks are designed to adversely affect revenues flowing into Saudi Arabia from that country’s oil trade.
The Big Takeaway: If nothing else, these attacks show how vulnerable oil production facilities are and, therefore, how fragile an oil-based infrastructure really could be, if attacked by zealots of one kind or another.
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