Saudi Arabia's oil facilities are expected to see supply disruption of at least 3-4 million barrels for the time being even if the state manages to restore one-third of the supply as it promised, said Vikas Halan, senior vice president - corporate finance group, Moody's Investor Services. He added that since the supply restoration could take weeks, the deficit will have to get compensated by either spare capacity in rest of the OPEC or Russia.
Halan said it will also depend on what happens with Iran discussions - whether this escalates further or whether this results in some kind of relationships over the next few months.
From a premium perspective, there are two things, one is the higher oil prices and other is a spike in refining margins in the region. “So on oil prices, we are in a period of relatively higher oil prices closer to USD 70/bbl and then we will have to see on refining margins how long this lasts,” said Halan.
Oil prices could remain higher for about a month or so and then reassess depending on the supply factors.
“I still believe that the overall narrative has not changed. This is a sudden supply shock and the rest of the spare capacity will take time to ramp up. OPEC and Russia have spare capacity, so it is not like this cannot be compensated,” he said, adding that the global demand was still growing to the tune of one-million barrel per day.
"We also see Saudi coming back up, this is not going to make permanent damage to oil supply. If Iran tensions escalate there could further upside in oil prices for period of time but the longer-term trajectory still remains intact," he said.