Factories cost: why a sharp decline in oil production in Saudi Arabia scared international investors

September 17, world oil prices are falling after a sharp jump the day before. The barrel of the Brent benchmark fell 6.5% to $ 64.5. Such data are provided by the ICE exchange in London. On the eve of the cost of raw materials soared by almost 15% - up to $ 69 per barrel. During the trading day of September 16, quotes rose to $ 72 - a record of the last four months.

Experts linked the uncertainty in the energy market with a sharp decline in oil production in Saudi Arabia after an unmanned aerial vehicle attack on factories. Investors fear that the elimination of damage may last for months.

“Initially, the timing of a full recovery was estimated at several weeks, but now we are talking about six or even ten weeks. Until reliable data on the state of enterprises and repair plans appear, uncertainty will remain among investors, ”said NaftaGaz CEO Islam Nazaraliev to RT.

Saudi Arabia has about 200 days left to fully resume the operation of the plants. During this period, other oil exporting countries will be able to maintain supply on the world market at the expense of their own reserves. If Riyadh does not have time to repair and start up enterprises within the indicated period, oil prices will continue to grow steadily. This was in a conversation with RT said analyst at Freedom Finance Investment Company Alain Sabitov.

According to the analyst, in the coming days, oil may again rise in price to $ 69-70 per barrel.

In Riyadh itself, they are confident that the kingdom will independently cope with the consequences of attacks. This was stated by the King of Saudi Arabia, Salman bin Abdel-Aziz Al Saud.

“Saudi Arabia is strong enough to overcome the consequences of recent aggression, the purpose of which was not only the economy of the kingdom, but also the undermining of the world oil market and the stability of the entire world economy,” TASS quoted the Saudi monarch.

Recall, on September 14, drones attacked the oil refineries (refineries) of the Saudi state corporation Saudi Aramco. As a result, the company suspended production of about 5.7 million barrels per day. Thus, oil production in the kingdom fell by half, and world prices for raw materials began to rise sharply.

Concerns of investors are also associated with the aggravation of relations between Iran and the United States. Tehran accuses Washington of organizing an attack on Saudi Aramco, and American politicians are urging them to consider the possibility of striking Iranian oil facilities. This was previously posted on Twitter by the US Republican Senator Lindsay Graham.

The threat of military conflict could result in disruptions in the supply of raw materials throughout the Middle East. Analysts believe that in this case, quotes may rise above $ 70 per barrel. According to Dmitry Alexandrov, the chief strategist at UNIV Capital, if an armed conflict does not occur, and Saudi Arabia will gradually restore production, prices will return to the level of $ 62-63 per barrel.

Loss of status

It is noteworthy that the undermining of the Saudi Aramco refinery occurred a few days after the announcement of the imminent release of the company on the stock exchange. As the head of the Saudi state corporation, Amin Nasser, said on September 10, the first public offering (IPO) of the commodity giant is planned to be held “in the near future”.

However, now the company will need additional resources and time to eliminate the consequences of the attack. According to Alain Sabitov, as a result, the terms of the public offering of shares may move.

IPO Saudi Aramco may be the largest in the history of the global stock market. In total, the kingdom plans to sell 5% of the company's securities and raise $ 100 billion for the development of the economy.

As previously stated by the Crown Prince of Saudi Arabia, Mohammed bin Salman, the total cost of the state corporation is estimated at $ 2 trillion - almost two times the rate of the most expensive companies in the global stock market. For comparison: Microsoft's market value is $ 1.04 trillion, Apple - $ 993 billion, Amazon - $ 894 billion, Alphabet (owned by Google Inc.) - $ 853 billion. Such data are quoted by NASDAQ.

After drone strikes, Saudi Aramco could lose about $ 300 billion, reports The Wall Street Journal, citing sources. According to Alena Sabitova, the total amount of losses may be several times larger, and the corporation may lose the status of the most expensive company in the world.

“The incident revealed the company's vulnerability and increased the risks of destabilization throughout the region. The situation increases the discount factor (the difference between the initial and final cost of the company. - RT ) for investors and puts pressure on the assessment of Saudi Aramco. Thus, the $ 2 trillion desired by the Saudis is becoming less and less realistic. A more probable estimate is $ 1 trillion, ”Sabitov said.

Help partners

The situation surrounding the attack on Saudi Aramco may affect the terms of the agreement to reduce oil production. Analysts did not rule out that OPEC + countries will begin to gradually increase oil production and thereby partially compensate for the volumes of Saudi raw materials falling from the market.

“Production in Saudi Arabia fell by 5.7 million barrels per day and can be restored only by 3-4 million in the near future. OPEC countries can immediately increase their daily production by about 1 million barrels,” Sabitov explained.

Starting January 1, the countries participating in the OPEC + agreement reduce oil production by 1.2 million barrels per day from the level of October 2018 to balance the global energy market.

According to the agreements reached, OPEC states must reduce oil production from 26.75 million to 25.94 million barrels per day. As follows from the organization’s latest report, in August countries exceeded the terms of the agreement and produced 25.78 million barrels per day.

Currency calm

Following the decline in oil prices, the Russian currency is becoming cheaper. At the Moscow Exchange on September 17, the US dollar rose by 0.5% to 64.3 rubles, while the euro added 0.8% and reached 71 rubles.

The official exchange rate of the Central Bank as of September 18 was 64.12 rubles per dollar and 70.6 rubles per euro.

“Recently, the dependence of the ruble exchange rate on oil has decreased by 45%. Today, the stability of the Russian currency is primarily affected by geopolitical factors, as well as the start of the tax period, which should support the ruble, ”explained Gaydar Hasanov, an expert at International Financial Center, RT.

Thus, the analyst does not expect major changes in the dynamics of the national currency in the event of sharp fluctuations in the oil market. According to Sabitov’s forecast, in the near future the dollar will continue to trade near the level of 64 rubles, and the euro - 70.3 rubles.