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Why attack on Saudi leaves world without spare oil capacity

​Haven't OPEC and its allies been cutting output?
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​Haven't OPEC and its allies been cutting output?

Yes, OPEC and its allies such as Russia have cut output to prevent prices from weakening because the market has been oversupplied.

Those cuts aimed to reduce supply by 1.2 million bpd. But much of that was from Saudi Arabia so it now cannot be reversed quickly.

Non-OPEC members such as Russia are pumping near capacity, with perhaps only 100,000-150,000 bpd of available additional production.

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​What about Iran?
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​What about Iran?

Iran holds spare capacity but it cannot get the oil to market because of sanctions imposed by the government of U.S. President Donald Trump.

Iran's exports have fallen over 2 million bpd since April.

Washington has said Iran was behind Saturday's attack, so is unlikely to ease sanctions to allow Iran to plug a gap it believes was created by Tehran.
Iran, for its part, said after the attack that it would pump at full volume if sanctions were eased.

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​What about US shale?
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​What about US shale?

The United States has become the world's top crude producer after years of rapid growth in supply from the shale sector, much of it pumped from fields in Texas. The U.S. has also grown as an exporter, and shipped more crude to international markets in June than Saudi Arabia.

Shale producers can move quickly to pump more when prices rise, and can bring production online in a matter of months. That is a much faster time line than most traditional oil production. If the Saudi outage looks like it will be prolonged and oil prices rally significantly, then shale producers will raise output.

But even if shale producers pump more, there are constraints on how much the United States can export because oil ports are already near capacity.

In pic: First ship carrying shale gas from the US, arrives in the Firth of Forth on route to Grangemouth Oil refinery in Edinburgh, Scotland.

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​So what happens now? what about oil in storage?
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​So what happens now? what about oil in storage?

It all depends on how long the outage lasts. Saudi Arabia, the United States and China all have hundreds of millions of barrels of oil in strategic storage. That is the storage that governments keep for exactly this scenario - to compensate for unexpected outages in supply.

They can release oil from strategic storage to meet demand and temper the impact on prices. U.S. President Donald Trump said on Sunday he had authorised a release from the U.S. Strategic Petroleum Reserve.

The IEA, which coordinates energy policies of industrialised nations, advises all its members to keep the equivalent of 90 days of net oil imports in storage.

Oil from storage should keep the market supplied for some time, but oil markets will likely become increasingly volatile as storage is run down and the possibility of a supply crunch rises.

The IEA said the markets were still well supplied despite the Saudi disruptions.

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​What happens if there is another supply disruption?
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​What happens if there is another supply disruption?

With no spare capacity, future disruptions would cause oil prices to rise. A higher price over time will encourage producers to invest and pump more, while at the same time reducing consumption.

OPEC member Libya is in the middle of a civil war, which threatens its ability to continue pumping oil. Another big Libyan disruption would add to the shocks and highlight the lack of spare capacity.

Nigerian exports have also suffered from disruptions.

Even before the Saudi attack, spare capacity was falling. Consultancy Energy Aspects has said it expects OPEC spare capacity to fall to below 1 million bpd in the fourth quarter from two million bpd in the second quarter of 2019.

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