Report: Storage Space Under Pressure, Saudi Arabia Begins Oil Production Cuts

As the disruption of shipping through the Strait of Hormuz continues, Saudi Arabia has joined the production cut efforts.

On March 9, according to Bloomberg, citing sources, Saudi Arabia is reducing crude oil output to address the rapid buildup of inventories caused by export disruptions, preventing storage facilities from filling up too soon. Previously, the UAE, Kuwait, and Iraq have taken similar measures. Some oil-producing countries are proactively cutting production to avoid the risk of forced shutdowns due to exhausted storage capacity.

The ongoing conflict in the Middle East has lasted for two weeks, severely restricting maritime traffic through the Strait of Hormuz, one of the world’s most important oil transit routes. Oil exports from Gulf producers are generally slowing down, with only Iran’s supply still able to pass normally through the strait.

The Strait of Hormuz handles a large portion of global crude oil transit, and the blockage directly reduces the export capacity of Gulf oil producers and drives international oil prices sharply higher. Today, WTI and Brent crude prices surged by as much as 30% intraday. Although the gains have narrowed somewhat, prices remain above $100 per barrel.

Limited Capacity of Saudi Alternative Pipeline Routes

As the world’s largest oil exporter, Saudi Arabia produces about 10 million barrels of crude daily, with exports reaching 7 million barrels. Facing the blockage of the Strait of Hormuz, Saudi Aramco is rerouting some shipments through the Red Sea port of Yanbu.

However, the pipeline capacity to this port is limited and cannot fully accommodate the original export volume through the strait. This means Saudi Arabia cannot offset all export demands through alternative routes in the short term, and inventory buildup pressures continue to rise.

Export disruptions and high inventories make proactive production cuts an “inevitable choice” for Gulf oil producers

Inventory limits are approaching, and Gulf oil producers face increasingly severe storage capacity challenges.

According to Antoine Halff, co-founder of geospatial analytics firm Kayrros, the remaining storage capacity of Saudi Arabia, the UAE, Kuwait, and Iraq totals just over 100 million barrels, about one-third of their total capacity. However, Halff pointed out on LinkedIn last week that due to operational constraints, storage facilities typically cannot reach their rated maximum, meaning actual available space is even tighter, and inventory pressures are more urgent than the numbers suggest.

JPMorgan previously warned that if the blockage of the Strait of Hormuz persists, Saudi storage space could be exhausted in just over two months. This outlook is prompting the country to actively cut production to avoid reaching storage capacity and risking a complete shutdown.

Risk Warning and Disclaimer

Market risks are present; investments should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions herein are suitable for their particular circumstances. Investment is at your own risk.