Saudi Arabia, the UAE and Bahrain have joined Iraq and Kuwait in curbing crude output, as the near-halt in tanker traffic through the strait of Hormuz cuts Opec+'s Mideast Gulf producers off from their main export route and leaves storage space rapidly diminishing.
The five countries have been forced to reduce production as logistics constraints limit their ability to move crude to international markets, taking an estimated 6.2mn–6.9mn b/d of regional supply offline, according to Argus calculations based on February production levels.
Saudi Arabia has begun cutting production by shutting several offshore fields in response to security threats from Iranian missile and drone attacks on Gulf energy infrastructure, sources with knowledge of the matter told Argus. The kingdom has closed the Safaniya, Marjan, Zuluf and Abu Safa fields, curtailing an estimated 2mn–2.5mn b/d.
Saudi Arabia produced 10.88mn b/d in February, while supply to markets averaged 10.1mn b/d, Argus estimates show. State-controlled Aramco began offering Asia-Pacific customers the option to load crude at the Red Sea port of Yanbu from 3 March, using the 7mn b/d east-west pipeline as an alternative to shipments through Hormuz. Riyadh is not yet exporting at those volumes from Yanbu.
Iraq's oil ministry said last week that production was being cut. A source familiar with the matter said today that Iraq "loaded its last export tanker yesterday". Production is being redirected to domestic refineries, which are ramping up runs.
Iraq produced 4.42mn b/d in February, but output had already fallen to 1.5mn–1.7mn b/d by 8 March and is expected to decline further to 1.2mn–1.3mn b/d, the source said. Excess refined products will be placed into storage, although those facilities are expected to fill rapidly if exports through the strait remain blocked.
Iraq's export options have been further constrained by the closure of the pipeline that carries crude from the north of the country to Turkey's Ceyhan port. The pipeline has shut for a second time since the US–Iran war broke out, port agents said. Before the most recent closure, pumping of heavy sour Kirkuk crude averaged around 50,000 b/d, roughly a quarter of normal flows.
Kuwait has also begun cutting output after exports were effectively halted by the conflict. State-owned KPC said on 7 March that it had started to reduce crude production and refinery runs, and had declared force majeure for crude and refined product exports. Kuwait's output has already fallen to around 2mn b/d, down from 2.59mn b/d in February, and could "very soon" drop to around 1.5mn b/d as refinery runs are lowered further, a third source said.
Kuwait's refineries have combined capacity of 1.615mn b/d but are operating at around 50pc utilisation. The country has stopped loading crude onto tankers, the source added.
In the UAE, state-owned Adnoc said on 7 March that operations continue despite the escalating conflict and shipping disruption. But "as a responsible operator, Adnoc is carefully managing offshore production levels to address storage requirements," the company said.
Adnoc continues to load crude from ports inside Hormuz, tracking data show. But a fourth source estimated UAE production had fallen to 2.7mn–3mn b/d, down from 3.53mn b/d in February.
The UAE can bypass Hormuz via the Adcop pipeline, which is currently estimated to be carrying 1.7mn–1.8mn b/d, above its nameplate capacity of 1.5mn b/d. Adnoc can also divert crude into domestic refining at the Ruwais complex, which can process close to 1mn b/d.
In Bahrain, state-owned Bapco Energies declared force majeure today after its 405,000 b/d Sitra refinery was hit in an attack.
Taken together, the disruptions amount to roughly 6.2mn–6.9mn b/d of shut-in supply, based on Argus' February production estimates.
The war, now in its second week, has left most commercial shipping unable to transit the strait of Hormuz, with only limited Iranian movements continuing. The paralysis has triggered a sharp rally in crude prices, with Ice Brent climbing above $100/bl on Monday in one of the largest single-day gains on record as markets price in the loss of Mideast Gulf supply.
