Navigating Red Sea Disruptions
Amin Nasser, CEO of Saudi oil giant Aramco, shared insights into the potential impacts of Red Sea disruptions caused by Houthi attacks on ships. While he believes global oil markets can handle short-term disruptions, prolonged attacks could lead to tanker shortages due to longer voyages and supply delays.
Tanker Availability in Short vs. Long Term
Nasser explained that in the short term, tankers might be available to address disruptions. However, if the attacks persist in the longer term, the situation could become challenging, necessitating the need for more tankers taking longer journeys. Container vessels have already altered their routes, avoiding the Red Sea and opting for longer journeys around South Africa’s Cape of Good Hope.
Strategic Pipeline Bypasses Red Sea Challenges
Aramco has a strategic advantage in bypassing potential challenges in the Red Sea. Nasser highlighted a pipeline connecting Aramco’s eastern and western facilities, allowing quicker access to the Suez Canal, a crucial route for global shipping.
Oil Demand, Spare Capacity, and Market Tightening
Nasser expressed expectations of a tightening oil market, emphasizing that consumers have depleted stocks by 400 million barrels in the last two years. With OPEC’s spare capacity as the primary source to meet rising demand, he foresees a reduction in spare capacity unless additional supply becomes available.
Outlook on Oil Demand Growth
Looking ahead, Nasser projected oil demand at 104 million barrels per day (bpd) in 2024, reflecting a growth of approximately 1.5 million bpd after a 2.6 million bpd increase in 2023. He highlighted the combined effect of demand growth and low stocks contributing to further market tightening.
Global Stocks and the Role of Spare Capacity
Nasser noted that global stocks have reached the lower end of a five-year average, emphasizing the importance of spare capacity, currently standing at around 3.5% globally. As demand rises, spare capacity may erode without additional supply.
Uncertainties in Peak Oil Demand
Addressing uncertainties in peak oil demand, Nasser acknowledged the shifting landscape of fossil fuel consumption from developed to developing countries. With China showing robust demand growth, he emphasized the need for ongoing analysis as the industry evolves.
Aramco’s Investments in China and Chemical Market Focus
Aramco’s strategic investments in Chinese refineries with attached crude supply deals reflect its focus on a fully integrated approach. Nasser mentioned ongoing talks for further investments, emphasizing China’s attractiveness as a market with opportunities for growth in the chemical sector.
The Evolving Dynamics of Global Oil Demand
Nasser concluded by highlighting the evolving dynamics of global oil demand, particularly in the context of shifting consumption patterns and economic development in developing countries.
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Credit: Yousef Saba