Oil prices soar after attacks halve Saudi output

Oil prices soar after attacks halve Saudi output

Brent crude spikes as much as 20% in biggest percentage move since 1990 Kuwait invasion

Oil prices rose as much as 20 per cent to above $71 a barrel — the biggest percentage spike in almost three decades — as markets reopened after an attack on Saudi Arabia’s oil infrastructure that cut more than half the country’s production.

The rally, which followed news that Saudi Arabia’s oil production is expected to be well below maximum capacity for an extended period, set oil on course for one of its biggest one-day gains as traders worried over the extent of the outage.

Three people briefed on the latest damage assessments said on Monday that the kingdom’s oil production could take months to return to full capacity, potentially thwarting efforts to calm the market.

State oil giant Saudi Aramco has been scrambling to arrange repairs and to bring oil output back online in the world’s largest oil exporting country. The company did not immediately respond to requests for comment.

With some of the shutdowns only precautionary, part of the 5.7m barrels a day of lost supplies is likely to return earlier. But initial assessments of damage to key equipment in the kingdom suggest getting back to full capacity will take longer than previously indicated.

Brent crude oil prices spiked by almost $12 a barrel to near $72 a barrel when the market opened on Monday as traders rushed to buy back old bets against the oil price and to position themselves against rising risks in the Middle East. Prices later slipped back to around $66 a barrel, still up almost 11 per cent on the day.

The prices of assets regarded as havens in times of turmoil climbed. A jump in prices pushes the yields on 10-year US Treasuries down by 0.044 percentage points, to 1.852 per cent. Gold climbed almost 1 per cent to $1,501.84 an ounce.

Investors said they were hopeful that the broader impact could remain contained despite the oil rally coming at a sensitive time for markets.

“While the attacks present yet another headwind for a global economy that is already buffeted by deteriorating manufacturing activity and elevated trade tensions, we don’t believe that this short-term disruption to oil production will trigger a global recession,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

The loss of more than 5m b/d is the single biggest outage from one incident and is equal to more than 5 per cent of global supply. Brent’s spike when the market opened was the largest move in percentage terms since Saddam Hussein invaded Kuwait in 1990.

Andy Hall, one of the most successful oil traders of his generation, said the impact was at least comparable to the invasion of Kuwait. “This attack underscores the vulnerability of oil production facilities in the Middle East . . . It would seem the oil market needs to not only price in the current supply loss but also a higher risk premium for the future.”

But the price gain, while dramatic, has still only taken crude back to levels it traded at as recently as July.

The US benchmark, West Texas Intermediate, was up by as much as 16 per cent to $63.64 a barrel before paring back these gains to $59.25 or 8 per cent up.

Iran-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.

Shortly after prices jumped, the US president again took to Twitter, saying that “[we] are locked and loaded” and had suspicions who was behind the attack, suggesting a possible military response.

“Saudi Arabia oil supply was attacked,” Mr Trump tweeted. “There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!”

He then tweeted: “PLENTY OF OIL!”

Saudi Arabia has said it will be able to supply oil from storage as well as bring spare production capacity on stream, which may allow it to largely maintain exports to international markets.

But by drawing down its own oil inventories analysts have cautioned that the market will be more exposed to future outages.

Government officials in big Saudi oil consuming countries in Asia, such as India and South Korea, said they had been told imports from Saudi Arabia would not be affected but they are monitoring the situation.

The attack 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.

The International Energy Agency and the US Department of Energy said they have ample emergency reserves which they could turn to in the event of a prolonged disruption, but analysts said it may not be enough to stop prices spiking first.

Saudi Arabia’s press agency said late on Sunday that 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 Prince Abdulaziz bin Salman, the kingdom’s energy minister, 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.

David Sheppard,  Anjli Raval and Hudson Lockett

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