Kuwait Airport Bombed, Oil Rally Continues

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

U.S. officials are embracing a cease-fire mantra, while Iran talks tough on negotiations. Fighting raging since February is forcing changes in the global energy sector.

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Violence Drives Oil Higher

Global crude oil prices were marching toward $100 barrel on Wednesday amid renewed fighting in the Middle East, though some energy players said they're starting to adjust to the new reality.

Industrial Info Resources has been keeping tabs on the conflict since it began with joint U.S.-Israeli airstrikes on Iran in late February that left former Supreme Leader Ali Khamenei and a handful of top officials dead. On Tuesday, Industrial Info Resources reported that Kuwait Integrated Petroleum Industries Company is running its Mina al-Zour Refinery at reduced rates.

Normal operations were expected by late April, though it looks like July before the facility is back to its nameplate capacity. That comes as dozens were injured and one person was left dead in a drone attack on the Kuwait International Airport.

U.S. officials continue to talk of a cease-fire agreement, though fighting is ongoing. Mohsen Rezaei, a top Iranian military advisor, said Wednesday that "neither in negotiations nor in the ceasefire process will we allow America to make excessive demands."

Tensions continue to add a geopolitical risk premium to commodities from fuels to fertilizers. The price for Brent crude oil was trading higher, at $97 per barrel, early Wednesday. It closed May at $92.05.

Is the Market Adjusting?

From the sidelines of a Middle East energy conference in London, Reuters reported that Shaikh Khaled Ahmed al-Sabah, the managing director for international marketing at the Kuwait Petroleum Company, said his company could restore its refinery output to its nameplate capacity of around 1.4 million bpd in a matter of weeks.

Sabah added that he's been in talks with regional neighbors about expanding pipeline options that could avoid the Strait of Hormuz.

"A lot of people thought, why build a pipeline without using it?" he was quoted by Reuters as saying. "Now (the conflict) shows the use of a pipeline."

Delegates from Austrian energy company OMV agreed, saying the conflict shows that markets need to compensate for chokepoints and bottlenecks.

The Abu Dhabi National Oil Company (ADNOC) already put US$3 billion toward the Dhanna-Fujairah crude oil pipeline, a 310-mile artery that can avoid the Strait of Hormuz.

Elsewhere, the United Arab Emirates proposed a new pipeline called West-East, which could complement the Habshan-Fujairah crude oil pipeline. Saudi Arabia too can avoid the Strait of Hormuz, though none of the pipeline options can make up for the 20 million barrels per day (bpd) that would normally move through the waterway.

Industrial Info Resources is tracking more than 800 operational crude oil pipelines across the Middle East, in addition to active and proposed projects such as the Dhanna-Fujairah line. Readers can learn more from a detailed project report.

A separate report from the Bloomberg news service, meanwhile, noted that industry experts told economist at the Organization of the Petroleum Exporting Countries they felt it would the end of the year before the Strait of Hormuz opens.

By the Numbers

• $3 billion toward a pipeline to avoid the Strait of Hormuz
• $97 per barrel for Brent

Key Takeaways

• Bombing of Kuwait airport drives oil prices higher
• Iran says it won't cater to U.S. demands

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 trillion (USD).