Markets

Saudi oil production cut by 50% after drones attack crude facilities

Key Points
  • The closure will impact almost 5.7 million barrels of crude production a day, about 5% of the world's daily oil production. 
  • Early Saturday, an oilfield operated by Saudi Aramco, the state-owned oil giant, was attacked by a number of drones.
  • Yemen's Houthi rebels have claimed responsibility for the attack, saying it was one of their largest attacks ever inside the kingdom.
  • But U.S. Secretary of State Mike Pompeo blamed Iran for the attacks.
Smoke billows from the Abqaiq, Saudi Arabia crude processing facility after drone strikes Saturday, Sept. 14, 2019
Satellite imagery courtesy of Planet Labs

Saudi Arabia shut down half its oil production Saturday after a series of drone strikes hit the world's largest oil processing facility in an attack claimed by Yemen's Houthi rebels.

The closure will impact almost 5.7 million barrels of crude production a day, about 5% of the world's daily oil production, according to Saudi Aramco. In August, Saudi Arabia produced 9.85 million barrels per day, according to the latest figures from the U.S. Energy Information Administration.

Saudi Energy Minister Abdulaziz bin Salman said the attacks also led to a halt in gas production that will reduce the supply of ethane and natural gas liquids by 50%.

Saudi Aramco President and CEO Amin Nasser said nobody was hurt in the attacks and emergency crews have contained the fires and brought the situation under control.

"Work is underway to restore production and a progress update will be provided in around 48 hours," Nasser said.

Early Saturday, the Khurais oilfield operated by Saudi Aramco, the state-owned oil giant, and the Abqaiq oil processing facility were attacked by a number of drones. The facility at Abqaiq is crucial for global energy supplies.

Yemen's Houthi rebels claimed responsibility for the attack, saying it was one of their largest attacks ever inside the kingdom.

"We promise the Saudi regime that our future operations will expand and be more painful as long as its aggression and siege continue," a Houthi spokesman said. The attack deployed 10 drones, the Houthis said.

But U.S. Secretary of State Mike Pompeo blamed Iran for the attacks.

"Tehran is behind nearly 100 attacks on Saudi Arabia while Rouhani and Zarif pretend to engage in diplomacy," Pompeo wrote on Twitter. "Amid all the calls for de-escalation, Iran has now launched an unprecedented attack on the world's energy supply. There is no evidence the attacks came from Yemen."

The White House said President Donald Trump spoke with Crown Prince Mohammad bin Salman to offer U.S. support for Saudi Arabia's defense.

"Violent actions against civilian areas and infrastructure vital to the global economy only deepen conflict and mistrust. The United States Government is monitoring the situation and remains committed to ensuring global oil markets are stable and well supplied," the White House said.

The Saudi interior ministry said investigations into the terrorist attack are ongoing.

Saudi Energy Minister Salman said the kingdom will compensate part of the production to its customers from its reserves.

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"This is a big deal," said Andrew Lipow, president of Lipow Oil Associates. "Fearing the worst, I expect that the market will open up $5 to $10 per barrel on Sunday evening. This is 12 to 25 cents per gallon for gasoline."

Lipow noted over four million barrels per day of Saudi oil exports go to Asia, while the U.S. imports about 600,000 barrels. The biggest importers in Asia are China at 1.3 million barrels and Japan at 1.2 million barrels.

The International Energy Agency said Saturday it is "closely monitoring" the situation following the drone attacks, adding markets are "well supplied with ample commercial stocks."

The Houthis have been behind a series of attacks on Saudi pipelines, tankers and other infrastructure in the past few years as tensions rise among Iran and the U.S. and its partners like Saudi Arabia.

The Islamic Republic, a target of U.S. sanctions for decades, has recently attacked oil tankers in the Strait of Hormuz, shot down a U.S. military drone and announced plans to execute 17 suspected U.S. spies.

The latest attack came as Saudi Arabia moves forward to take Saudi Aramco public in a major shakeup of the kingdom's energy sector. The world's most profitable oil company is expected to be valued at more than $1.5 trillion, CNBC previously reported. Crown Prince Salman has pushed for a valuation of as much as $2 trillion.

—CNBC's Ted Kemp contributed to this report.

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