Saudi Arabia Importing Oil -- WSJ -- September 19, 2019

Link here. "To keep exports flowing, Saudi Arabia looks to import oil."

After attacks on the country’s largest oil facilities, Saudi Arabia is reaching out to foreign producers for crude and other petroleum products, upending its usual trade flows to plug gaps in its own supply.

Missiles knocked out roughly half of the country’s crude production, and the disruption to Saudi supplies is having knock-on effects all along the global oil-supply chain. To maintain its reputation as a reliable supplier, the world’s largest oil exporter is looking to buy crude oil from at least one of its neighbors and additional oil products from the global market, oil traders said.

Brent crude oil was up 2.8%, at $65.36 a barrel, with minimal early day gains accelerating in the minutes after The Wall Street Journal broke the news that Saudi Arabia is importing oil products and had requested two million barrels of oil from Iraq. West Texas Intermediate futures were up 1.6%, at $59.01 a barrel.

Where will the oil come from? Iraq.

On Sunday, September 15, 2019, the day after the attack, I wrote:

• Biggest winner? Iraq.
• Next? Maybe US shale.

"Alfalfa": things will be back to normal by Monday."

Democrats running for president: ban fracking. It's one thing to try to beat Trump at all costs, but to take down the US to do that is insane. Some might say treasonous?

Now with regard to the note from yesterday -- see below. There are two "things."

First: what in the world was Saudi Arabia thinking when drawing down supplies so incredibly fast since 2016? The buildup began in 2008, about the same time the US shale revolution was beginning, and accelerated in 2014 - 2016 when Saudi opened the spigots, flooded the world with oil, trying to break the US shale operators (their "trillion-dollar mistake"). Then, for some reason, started draining inventories at an unprecedented level. What was their goal? How low were they going to go?  Something to explore later on.

Second: back-of-the-envelope. The graph shows 179 million bbls as of April, 2019, One might assume the drawdown continued, but we don't know. We are being told that Saudi Arabia did take another 8 million bbls out of storage in July, 2019.  All agree that the Iranian attack took almost 6 million bopd out of the pipeline, but let's call it five (5 million bopd).

Saudi has said they will meet customers' requirements/contracts. It's now pretty much agreed that things won't be back to "normal" NET the end of September, 10 days.

Others suggest they won't be back to "normal" until the end of October, 40 days.

40 days: that's a nice Biblical number. But I digress.

40 x 5 = 200.bbls.

And now, only five days after the attack, we learn that Saudi is importing oil.

And we move on.

Yesterday a reader suggested that the price of oil should be moving higher not lower. I responded:

Just prior to reading your note, I posted a note about Saudi storage (http://themilliondollarway.blogspot.com/2019/09/saudi-storage-september-18-2019.html).

Then I read your note. There seems to be a real disconnect. If you are correct (and I agree with you) and if my thoughts on Saudi storage are correct (and I've yet to post my conclusion) then the price of WTI is way, way too low right now.

We should see much higher numbers right now. In fact, if you are correct (and you are) and if my thoughts on Saudi storage are correct, we could see some incredibly high oil prices before then end of November, 2019, if not sooner.

WTI: the inexplicable decline in prices over the past day or so has now reversed direction; WTI is up almost 2% overnight, up over a dollar a bbl, and now trading at $59.11.

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Background

Re-posting. Yesterday I wrote:

This may be the most interesting "thing" being talked about over at twitter right now. These are the tea leaves:

• the attack was worse than first thought
• it will take longer than first forecast for Saudi to be back to "normal"
• it appears the end of September is the earliest Saudi would be back to "normal"
• most suggest back to "normal" will occur NET the end of October
• most agree that 5 million bopd were knocked out of the "pipeline" by the attack
• Saudi says they will make up the difference from their oil in storage
• the most interesting thing over on twitter regarding Saudi storage: no one really has the same number
• I've seen figures as low as 60 million bbls in storage
• I've seen figures as high as 400 million bbls in stoage
• the most "consistent" figure coming from the more "credible" sources has been 160 million bbls in storage
• prior to the attack, Saudi Arabia was dropping the amount of oil in storage for a number of reasons
• prior to the attack, in the month of July, 2019, Saudi Arabia's crude oil storage dropped by 8 million bbls

With all that data, it's easy to come up with some back-of-the-envelope numbers. We'll come back to this later but see if you see what I'm seeing.

Later, 8:43 p.m. September 18, 2019: let us continue. I think this is a most incredible graphic. For some reason, Saudi Arabia has been deliberately filling customers' orders with oil from storage for the past several months, not from "new" oil:

This is an amazing graphic. Spend some time thinking about it.