Oil prices soar after attacks halve Saudi output
Oil prices soared as much as 20 per cent to above $71.00 a barrel as markets reopened after a big attack on Saudi Arabia’s oil infrastructure cut more than half the country’s production this weekend.
The dramatic rally, which follows news that Saudi Arabia’s oil production is expected to be well below maximum capacity for weeks, has set oil on course for one of its biggest one-day gains and will raise fears that traders are spooked by the extent of the outage.
Brent crude oil, the international benchmark, gained almost $12 a barrel to trade as high as $71.95 a barrel, before easing back to $68 a barrel, still up more than 12%. The US benchmark, West Texas Intermediate, was up by as much as 16 per cent to $63.64.
The attack, which the US has said was orchestrated by Iran, has sharply raised geopolitical risks in global energy markets and may reverberate through the wider economy. The short-term fear is about the lack of clarity from Saudi Arabia, the world’s largest oil exporter, over how long it will take to recover output towards the 9.8m barrel a day level it was producing before the attack.
Jason Gammel at Jefferies said the attack had led to an “unprecedented threat to supply” and it would be the “overwhelming driver of price in the near term”.
Iranian-backed Houthi militias in Yemen claimed responsibility for the attack on Saturday, saying they used drones to target Saudi Arabia’s oil infrastructure. However, Washington has indicated it suspects the attack may have originated in one of the kingdom’s other neighbours.
US president Donald Trump tweeted seconds before the market opened, in his first public comments on the attack, that he had authorised the release of emergency oil stocks “if needed” in a “to-be-determined amount” in a clear effort to calm the spike.
Saudi Arabia has been rushing to restore supplies, and has said it will be able to supply oil from storage as well as bring spare production capacity on stream. But sources briefed on the situation say a large percentage of the 5.7m b/d of crude output that went offline on Saturday could be lost for some time.
The attacks on Abqaiq, a crude processing centre south-west of Aramco’s headquarters in Dhahran that prepares almost 70 per cent of the kingdom’s crude for export, is of particular concern because the complex facility is vital to crude output. The Khurais oilfield was also targeted.
Traders and analysts have warned that even if Saudi Arabia can restore output quicker than currently expected, fears of further attacks — or retaliation by Riyadh or Washington against Iran — could further destabilise global energy markets.
Eurasia Group, a consultancy, said the weekend’s events “will encourage markets to re-examine the need for considering an oil geopolitical risk premium” and said a prolonged outage could lead to a $10 a barrel increase in prices.
A sharp rise in oil prices also comes at a delicate time for the global economy. Fears of a slowdown are percolating and unlikely to be helped by higher energy costs.
The International Energy Agency and the US Department of Energy have said they have ample emergency reserves which they could turn to in the event of a prolonged disruption, but analysts have said it may not be enough to stop prices spiking first
Saudi Arabia’s press agency said late on Sunday the crown prince Mohammed bin Salman had received a telephone call from his counterpart in Abu Dhabi, who condemned the attack. The statement stressed that Saudi Arabia “has the ability to confront and deal with this terrorist aggression”.
The state news body also said the kingdom’s energy minister Prince Abdulaziz bin Salman had inspected the Saudi Aramco plants in Abqaiq this weekend and had held meetings with the chairman and chief executive of the state oil company. It made no comment on the likely length of the production outage.