Oil Prices Soar By 10% After Attacks On Saudi Reserves
On Monday, September 16, oil prices soared by as much as 10 per cent after Saudi Arabia’s oil facilities were attacked on Friday, September 14, cutting more than 5 per cent of global oil supply.
The Brent crude futures touched $71.95 per barrel on the opening, registering most significant gains since 1991. Following a jump of over 15 per cent to a session high of $63.34 a barrel, U.S. West Texas Intermediate (WTI) futures climbed $5.76 a barrel or 10.5 per cent to $60.60 a barrel.
Following U.S. President Donald Trump’s announcement to release oil from the U.S. Strategic Petroleum Reserve (SPR) if required in a quantity that will be determined due to the attack, prices eased off their peaks.
“The Natural Knee Jerk Reaction”
According to state oil giant Saudi Aramco, at a time when Aramco is actually trying to get ready for what may be the largest share sale in the world, the attack cut output by 5.7 million barrels per day.
Although Aramco has not given any timeline for output resumption, and it is believed that the return to full oil capacity could take “weeks, not days.”
“The surge in prices is the natural knee jerk reaction but the path ahead and ability to sustain at elevated levels remains dependent on the duration of the outage, the ability to meet export commitments through domestic drawdowns, demand elasticity at higher prices as well as government and agency policy,” Business Today quoted Michael Tran, managing director of energy strategy at RBC Capital Markets in New York, as saying.
A senior US official said that it is Iran that directed the attack on the plants, including the world’s biggest petroleum-processing facility. Cruise missiles may also have been used. Donald Trump said that the United States was “locked and loaded” for a potential response to the attack.
In the wake of this attack, S&P Global Platts said that there is increasing concern about supply security in the Middle East. The risk premium in the global crude market is expected to rise. In a note, ANZ Research also said that the market would price in “a sizable global geopolitical risk premium.”
“Any expectation that the market had about the U.S. easing sanctions on Iran following President Trump’s dismissal of John Bolton will quickly dissipate. This should see Brent crude test the $70 per barrel mark in the short term,” ANZ Research said.
Consultancy Energy Aspects said in a note that after the attacks on Saturday, Saudi Arabia is all set to become a significant buyer of refined products. While cutting liquefied petroleum gas exports, it is likely that Saudi Aramco will buy substantial quantities of gasoline, diesel and possibly fuel oil.
Saudi Aramco, meanwhile, has told an Indian refinery that since it will deliver crude from other sources and has sufficient inventory, there will be no impact on oil supplies immediately.