The drone strike on major Saudi Arabian oil sites, including the world’s largest oil processing facility, could add a significant risk premium to the price of crude oil, as the attack cut the kingdom’s output in half.
Armed drones targeted a refinery in the city of Abqaiq, the crown jewel of the Saudi oil infrastructure, which is crucial for global energy supplies, and a refinery at the vast Khurais oil field. The attack, claimed by Yemen’s Houthi rebels, seriously damaged the kingdom’s production capacity, affecting more than 5 million barrels of crude processing per day.
Despite assurances from the International Energy Agency (IEA) that the global oil markets are “well supplied,” and oil giant Saudi Aramco saying it can restore production, this major disruption in the world’s leading oil exporting state is poised to send oil prices soaring when trading reopens late Sunday, analysts believe.
The gloomiest scenario includes crude prices in triple digits. If the shortage persists for a long time, oil is feared to rise to $100, according to Forbes and some industry experts. Moreover, the already slow global growth may suffer even more.
Attacks in Saudi Arabia are a recipe for $100 Oil & global recession. Saudi’s production is from single entity: Saudi Aramco. They move and transport a large fraction of the production through relatively small areas. Makes it extremely vulnerable to attack https://t.co/9WWbiHbYxXpic.twitter.com/XTpBFyalxo
— Holger Zschaepitz (@Schuldensuehner) September 15, 2019
The attack on the Saudi oil facilities is “akin to a massive heart attack for the oil market and global economy,” according to former top energy and economic adviser to President George W. Bush, Bob McNally. His concerns were echoed by a veteran OPEC watcher at consultant IHS Markit, Roger Diwan.
“Abqaiq is the heart of the system and they just had a heart attack,” Diwan told Bloomberg.
While many agree that the oil market cannot ignore the attack in Abqaiq, how much the price of oil will spike is still a big question. Andrew Lipow of Lipow Oil Associates expects that oil will jump in the range of $5 to $10 per barrel, adding up to 25 cents per gallon for gasoline, according to CNBC.
Washington says it is ready to step in and offset any possible disruptions. On Saturday, the Department of Energy said the US can deploy resources from the Strategic Petroleum Oil Reserve, which holds nearly 645 million barrels of oil.
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