Quote:
Originally Posted by DiracSpike
Just curious, why not? I'd love for you to be right as someone who's levered to the tits on this stuff, the news seems to be the Saudi's believe they can get it fixed, plus release some from storage, plus the US releasing from storage and Russia pumping more. What drags this out, are there reports that the damage is more credible than the Saudi's are letting on?
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1) There is a huge supply deficit and no more spare capacity globally. The world was short 0.7 mmbbl/d since 2Q19. The spare capacity of gulf countries (ex Saudi) and Russia is maybe 0.7 mmbbl/d. Most remaining spare capacity was Saudi and this spare capacity was also hit in the attack. The only major unplanned outage globally is Iran.
Conclusion: the only way to plug the huge supply-demand gap is with inventories...
2) there isn't a lot of inventory in storage globally. Analysts who say there is don't get it. The cheapest area to store oil is USA, which is why oil builds up in US first and draws out of US last. Oil has drawn massively since May 2019 and is going to be at extremely tight levels by year end. Given that US inventories are mostly light and Saudi losses production was mostly light, US inventories are going to draw hard in November and December as they get exported to asian and European countries.
The SPR can only be drawn in event of actual shortage, so it won't kick in until after inventories get drawn down!
3) this should take weeks or months to repair. Whatever Saudi say...it's much worse. Saudi wants to downplay the issue because (a) the truth reduces their IPO valuation (b) the truth loses them market share (c) the truth loses them credibility on the world stage (d) the truth makes them look more vulnerable to their enemies
4) the geopolitical angle is ramping up. See the headlines about attacking Iran. Imagine if Saudi or US hits Iran's oil infrastructure in retaliation. Imagine if Iran stikes again while the facilities are under repair! The risks are huge!!!!
5) no one is going to try to grow into this for a long while because they don't know how long it will last. Also shale producers have no access to capital. So supply won't come to the rescue.