Crude oil production recovery to pre-war levels could take just a few months, Goldman Sachs analysts said, adding a note of caution that recovery could also take longer than that.
The bank estimates lost production in the Middle East at 14.5 million barrels daily as of this month. However, most of that is the result not of physical damage to fields but of precautionary well shut-in and “stock management”, the analysts noted, as quoted by Reuters. However, it bears noting that the amount of lost production represents over half of the Middle East’s total pre-war production rate, or 57%, to be more precise.
If Iran reopens the Strait of Hormuz and the hostilities end, these 14.5 million barrels daily could return relatively quickly, Goldman said. The bank’s analysts cited spare capacity in Saudi Arabia and the United Arab Emirates as helping the faster resumption of pre-war production. The chances of a final end to the war, however, are at the moment rather remote, with negotiations at a stalemate and the Strait closed, even though the ceasefire between Iran and the U.S. was extended earlier this week.
If the war drags on, oil production recovery would take considerably longer, not least because the longer oil wells remain shut in, the longer it takes to restart production. Long shut-ins lead to a decline in flow rates, and production recovery requires a more complex and time-consuming process.
There is also the issue of storage capacity, which has dropped by about half, or 130 million barrels, Reuters noted in its report. This would affect the speed of moving oil from the field to export terminals, one exports restart—whenever this might happen.
The investment bank cited other forecasters as predicting that some 70% of the oil production that was lost as a result of the war could resume within three months of the end of hostilities. Another 88% see a less optimistic period of six months for the return of the bulk of pre-war barrels.
By Irina Slav for Oilprice.com
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