Saudi Arabia has slashed oil output by roughly 20% as the war with Iran continues to choke off exports from the Persian Gulf, in what could become one of the largest sudden supply losses the global oil market has ever faced.
Saudi production has dropped by about 2 million barrels per day to around 8 million bpd after the kingdom shut down output from the massive Safaniya and Zuluf offshore fields, according to sources cited by Reuters. The two fields together produce more than 2 million bpd of mainly heavy and medium-heavy crude.
The shutdown is just the latest in the mounting disruption across the Gulf since the United States and Israel launched airstrikes on Iran on February 28. With the Strait of Hormuz effectively blocked to most commercial tanker traffic, producers across the region have been forced to shut in large volumes of crude.
Saudi Arabia has attempted to reroute some exports westward through its East-West pipeline to the Red Sea port of Yanbu, but that system primarily carries lighter crude grades and cannot fully compensate for the loss of offshore production tied to Gulf export routes.
The production cut marks a sharp reversal from February, when Saudi Arabia boosted output to 10.882 million bpd and supplied 10.111 million bpd to the market as part of contingency planning ahead of potential regional conflict.
Now the kingdom, the world’s largest oil exporter and the holder of most global spare capacity, is being forced to pull barrels off the market instead.
The International Energy Agency had already said earlier this week that Gulf producers—including Saudi Arabia, Iraq, Kuwait, Qatar, and the United Arab Emirates—have already cut at least 10 million barrels per day of oil production due to the shipping disruptions.
That represents roughly 10% of the global supply.
Unless shipping routes reopen quickly, the supply losses could deepen further, pushing oil prices sharply higher as refiners around the world scramble to replace barrels that may remain stranded in the Gulf for weeks or even months.
By Julianne Geiger for Oilprice.com
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