Saudi oil production outage could test US as swing producer

Saudi Arabia has traditionally taken on the role of swing producer, thanks to its spare capacity, but the US may have to step up to the plate if the outage is prolonged

Saudi Aramco, Donald trump, Khurais, Abqaiq

The drone attacks which temporarily erased 5.7mn barrels per day of Saudi Arabia's oil production shocked markets for a few reasons. Of course, fear of a supply shortage to Saudi Arabia's customers was immediate, and led to a jolt in crude oil prices.

But on a wider scale, Saudi Arabia is OPEC's largest producer, and has traditionally been its swing producer, essentially turning the taps on and off to regulate supply and demand.

“Last week the market’s focus was on further output cuts to balance oversupply, and so there is some level of buffer," said Will Scargill, managing oil and gas analyst at GlobalData. "However, Saudi Arabia had shouldered the largest portion of existing cuts and it is unclear whether all of this previous spare capacity will now be available. If a large portion of the reported 5.7mn barrel per day output loss is sustained for a period of weeks or more, it will be a huge challenge to fill that gap."

US President Donald Trump authorised use of the nation's emergency oil reserves, which hold approximately 645mn barrels of crude, to help fill a potential supply glut. 

“A period of sustained heightened prices and inventory draw-downs would likely spur US players to drill more," Scargill said. "However, their ability to bring swing supply would be put to the test and could be limited by financing and infrastructure constraints.”

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