Saudi attacks leave Opec output at 10-year low

Opec crude output fell to its lowest level in over a decade last month after drone and missile attacks caused unprecedented disruption to Saudi Arabia's production.

Opec output fell by 1.42mn b/d — or nearly 5pc — to 28.4mn b/d in September. It is the group's lowest monthly production since April 2009, when plunging demand triggered drastic supply cuts in the aftermath of the global recession. Compliance among the 11 Opec countries bound by the group's output restraint agreement with its non-Opec partners rose to 288pc last month, after Saudi-led discipline had kept levels at 130pc in January-August.

September's sharp decline was almost entirely the result of the 14 September attacks on the Abqaiq processing facility and the Khurais field, which briefly shut in 5.7mn b/d of Saudi output. Saudi production dropped by 1.39mn b/d last month to an almost nine-year low of 8.4mn b/d, Argus estimates.

Riyadh has reassured the market that its production has since recovered to pre-attack levels and that output capacity will be back at 12mn b/d by the end of next month. The country expects to produce 9.89mn b/d this month, unchanged from the guidance it gave before the attacks.

The speed of the recovery has surprised many in the industry, given the extensive damage to key installations, but oil minister Prince Abdulaziz bin Salman dismisses the lingering scepticism. "If you do not believe us you are welcome to come and visit… we can get you a quick visa now," he said.

Global supplies to the market were less affected than production, with state-owned Saudi Aramco taking crude from stocks to compensate for the lost output. Riyadh prioritised exports by temporarily reducing domestic refinery runs and securing alternative crude for its overseas plants. Preliminary shipping data show crude shipments from Saudi terminals dropped by 440,000 b/d to 6.39mn b/d last month, but Saudi Aramco is likely to have offset this shortfall with volumes from its overseas storage.

The company has pledged to compensate some Chinese buyers for substituting volumes of Arab Light and Extra Light — which were most affected by the damage at Abqaiq — with heavier grades in October, suggesting that short-term availabilities of light Saudi crudes might still be under question.

Saudi Arabia is the driving force behind Opec's production strategy, frequently leveraging its spare capacity to meet customer requirements in the event of unexpected losses, such as in Iran and Venezuela. The country has borne the lion's share of cuts under the Opec, non-Opec output restraint deal, producing roughly 460,000 b/d less than its 10.31mn b/d quota in January-August.

Improved compliance from serial quota busters Iraq and Nigeria contributed to lower Opec output in September, although neither managed to adhere to their agreed production ceilings. Iraqi output dropped by 90,000 b/d from August, leaving it 160,000 b/d above its 4.51mn b/d target. Nigeria recorded a more modest modest 20,000 b/d drop, leaving it around 245,000 b/d above its 1.69mn b/d quota. "We promised to comply," Nigerian oil minister Timipre Sylva said. "Unfortunately, the events in Saudi Arabia brought a lot of issues on the table. And we felt, at the moment, that we will not be required to comply. But we will comply in October," he said.

Venezuelan output fell for the second month in a row, with sanctions-driven export bottlenecks and insufficient storage capacity constraining production in recent weeks. Venezuela — which is exempt from the production cut deal — will soon become Opec's only remaining member in the Americas, after Ecuador announced it will leave the group in January.

Opec well head production mn b/d September August Target Compliance (%) Saudi Arabia 8.40 9.79* 10.31 693 Iraq 4.67 4.76 4.51 -12 Kuwait 2.65 2.66 2.72 187 UAE 3.07 3.08 3.07 102 Algeria 1.01 1.02 1.02 147 Nigeria 1.93 1.95 1.69 -362 Angola 1.46 1.39 1.48 145 Congo (Brazzaville) 0.32 0.30 0.32 50 Gabon 0.20 0.20 0.18 -217 Equatorial Guinea 0.15 0.11 0.12 -575 Ecuador 0.56 0.55 0.52 -181 Opec 11 24.42 25.80 25.94 288 Iran 2.19 2.22 na na Libya 1.14 1.05* na na Venezuela 0.65 0.75 na na Total OpecϮ 28.40 29.82 na na *revised † Iran, Libya, Venezuela are exempt from the deal

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