Fragile Recovery Seen in Persian Gulf Oil & Gas Production

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

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Summary

Persian Gulf crude oil production is about 75% of what it was before the start of the conflict in the Middle East. Additional review, however, led to an upward revision in crude oil prices.

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IEA Saw Production Gains in September

Crude oil prices in early Thursday trading were moving lower after a report from the International Energy Agency (IEA) found producers in and around the Persian Gulf were in the midst of a fragile recovery.

Industrial Info Resources has monitored damage to regional energy infrastructure since fighting began in late February with joint U.S.-Israeli airstrikes on Iran. Since then, shipping through the Persian Gulf and surrounding waterways has become increasingly risky, with a cargo ship sinking early this week following an attack.

Damage to regional infrastructure such as the Ras Laffan North and South terminals for Qatari exports of liquefied natural gas (LNG), along with attacks on the East-West oil pipeline that traverses the Saudi peninsula, have only added to the supply-side pressures.

But the IEA said there's a glimmer of hope. Led by Saudi Arabia, the IEA said in its monthly market report for October that producers in and around the Persian Gulf lifted crude oil production by 4.4 million barrels per day (bpd) in September, reaching 13.9 million bpd collectively.

That's more than 75% of pre-war levels.

"Robust Gulf of Oman ship-to-ship transfers helped lift total oil flows through the Strait of Hormuz by 3.7 million bpd to 10.9 million bpd, while the swift return of East-West pipeline flows increased overall bypass exports by 970,000 bpd to 5.6 million bpd," the report read.

Industrial Info Resources data show the 745-mile, 48-inch diameter East-West pipeline has a design capacity of 7 million bpd.

The IEA, meanwhile, said there are still bottlenecks that are impeding a return to pre-war conditions in the Persian Gulf region.

"A recovery in Middle East oil supply was well underway in September, with Gulf crude oil exports approaching pre-war levels," the report read. "However, the recent escalation in attacks on regional energy infrastructure and tanker traffic is threatening to derail further gains."

Subscribers to Industrial Info's breaking-energy news feature can take a deep dive into some of the assets impacted by the conflict. Elsewhere, Industrial Info finds that many of the regional refineries damaged thus far in the conflict are returning to normal capacity.

Among those targeted were the 240,000 bpd Yanbu Refinery (Saudi Aramco) and the 430,000 bpd Yanbu YASREF Refinery.

Not Out of the Woods Yet

But there's little spare capacity left in the market. Net exports from the Middle East, along with Russia, are down more than 60% year-on-year. In China and the United States, the world's leading economies, increased exports haven't been able to offset losses elsewhere in the market.

"With supply losses outpacing weaker demand, inventories have continued to decline," the IEA's report read.

In the United States, the largest oil producer in the world by volume, the Department of Energy was a bit more optimistic. Its monthly report showed shut-ins from Persian Gulf producers in September were the lowest since the conflict began.

"Despite ongoing constraints, we assume that a combination of convoys through the Strait of Hormuz and workarounds to oil exports from the Middle East, including bypass routes and increased use of ship-to-ship transfers, will lead to production and exports from the region generally increasing through the forecast period," the U.S. report read.

Optimism, however, wasn't enough to point to lower crude oil prices, with the U.S. Energy Department raising its forecast for Brent crude oil by $14 per barrel from its September report to $105 for the average during the fourth quarter. Brent was trading at around $105 early Thursday, down slightly from the prior close.

By the Numbers

• $14 per barrel upward revision to Brent crude oil forecast
• 4.4 million bpd lift from Persian Gulf producers to September, IEA finds

Key Takeaways

• The IEA saw something of a rebound in Middle East production, but it's fragile.
• U.S. analysis of the market situation led to an upward revision in its oil price forecast.

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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).