Drones strike disrupts 5% of global oil supply. Work to restore production is underway while Saudi Aramco expects to restore a third of production by end today. Saudi Arabia and the US are ready to tap oil reserves to solve immediate shortage. Brent crude oil was up 12% this morning to US$68.3/bbl. This benefits companies in energy and petrochemical sectors. PTTEP and PTTGC will benefit as direct oil plays from 30% liquid production and a gas-based producer respectively. Rising oil prices potentially reverse stock loss to gain for TOP and SPRC in 3Q19. Crude oil shortage would boost market GRM and chemical spreads.

Drone strike disrupts 5% of global supply

Saudi Arabia’s oil production was cut by half after explosive drone strike at two oil production facilities in Abqaiq, the heart of the Saudi oil industry, on Saturday. About 5.7m bpd of oil output and 2bncf of gas have been suspended. Abqaiq has 250-hectare complex and can produce 7m bpd of oil. Work to restore production is underway while Saudi Aramco expects to restore a third of production by end today. This is the biggest attack on Saudi Arabia’s oil production since Saddam Hussein fired Scud missile into the Kingdom in 1991. Saudi produced 9.8m bpd of oil in August or 10% of global supply. Iran-backed Houthi rebels in Yemen claimed responsibility of the attack. US Secretary of State Michael Pompeo blamed Iran directly.

Saudi Arabia and the US ready to tap oil reserves to solve immediate shortage

Saudi Arabia and the US will turn to their oil reserves to solve immediate shortage. The former has 188m bbl of oil reserves in tanks in the country and at three strategic locations in Rotterdam, Okinawa (Japan), and Sidi Kerir (Egypt). It also has 2.3m bpd of spare capacity, accounted for more than two-thirds of OPEC’s spare capacity of 3.2m bpd. This spare capacity can be brought on within 30 days and sustained production for at least 90 days. The US government is ready to tap its Strategic Petroleum Reserve (SPR) if needed. The US currently holds 645m bbl of oil, consisting of 395m bbl of heavy sour crude and 250m bbl of light sweet oil. The SPR is held in underground caverns on the Texas and Louisiana coasts.

PTTEP, PTTGC benefit as direct oil plays. Rising oil prices potentially reverses stock loss to gain in 3Q19 and boost market GRM for TOP, SPRC

Brent crude oil prices was up 12% this morning to US$68/bbl. After facing heavy sell-off last week, PTTEP’s share price should rebound strongly as it benefits from 30% liquid production. PTTGC benefits as a gas-based producer from rising naphtha prices to push up petrochemical prices and widen their spreads. If crude oil prices are to sustain in the next two weeks, this potentially reverses our expectation of stock loss to gain in 3Q19 for TOP and SPRC. Crude shortage could boost market GRM further.