Middle East Fighting Escalates with Refiners in the Crosshairs

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

 Summary

Idled in a July strike, the Jazan refinery complex in Saudi Arabia was targeted again during the weekend. While moving in fits and starts, the conflict continues to upend the global energy sector.

Houthis on the Attack

Industrial Info Resources on Monday continued to monitor the status of the energy sector in the Middle East a day after the Houthi rebel group in Yemen took credit for a drone strike on Saudi refining infrastructure.

Industrial Info in an alert to clients on Monday reported that the 400,000 barrel-per-day (bpd) Jazan refinery complex in Saudi Arabia was likely to remain offline through August. This comes after reports of an August 9 drone attack at the refinery from the Houthi rebel group, which has support from Iran. Industrial Info Resources confirmed that there was no impact on the refinery process equipment from the Sunday attack.

Following the July 27 attack, the facility was initially expected to resume operations this week. Operator Saudi Aramco continues repair work. The July strike damaged the Integrated Gasification Combined Cycle (IGCC) complex and the tank farm area, with a full restart now not expected until September.

Another refinery, Yanbu, and a crude oil pump station in Abqaiq have also been targeted in recent attacks, the latest of which came after Saudi Arabia, Turkey and Pakistan brokered a peace agreement to counter Iran.

Crude oil exported from Yanbu avoids the Strait of Hormuz, but shipments travelling south toward Asian markets must pass through the Bab el-Mandeb Strait and into Yemeni waters.

The price of crude oil responded with gains in early Monday trading. West Texas Intermediate, the U.S. benchmark for the price of oil, was up 1.6% at the start of trading to move near $80 per barrel. It had been as high as $114 in April, during the height of the fighting.

Maritime Trade Still at Risk

The escalation follows yet another dispute over opening the Strait of Hormuz completely to international navigation, a problem that didn't exist before fighting began in late February. Iran and Oman, which sit on opposite sides of the waterway, are working on a solution that would ostensibly sideline the United States if brokered as drafted.

Elsewhere, maritime attacks in the region continue. Ambrey, a British maritime risk agency, reported that a merchant vessel was hit on Sunday off the coast of Oman in the Strait of Hormuz.

Supplies, meanwhile, may be a looming issue. Five of the Top 10 crude oil suppliers to the United States are delivering well below the five-year average for this time of year, with no barrels at all arriving from Iraq or Saudi Arabia over the last two weeks, federal data show.

"Both finished gasoline and blending component inventories decreased (over the week ending July 31)," the U.S. Energy Information Administration stated in a weekly refinery report.

Though the United States is the world leader in crude oil production and exports, much of its refining sector was designed to process heavier types of crude oil from foreign suppliers rather than the light, sweet crude oil found in domestic shale basins.

The nation's strategic stockpiles, meanwhile, may be approaching new lows, limiting the ability to respond to other emergencies such as hurricanes along the refinery-rich Gulf Coast. As of Monday, the National Hurricane Center said it was monitoring disturbances in the Atlantic that could strengthen later this week as they approach U.S. territorial waters.

By the Numbers

• 1.6%: The jump in Monday morning crude as Middle East fighting resumes
• 400,000 bpd: The operational capacity of the Jazan refinery

Key Takeaways

• Middle East fighting continues to create global economic trouble.
• The Houthi rebel group in Yemen is increasingly active outside the Strait of Hormuz.

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).