Oil prices soar after Saudi oil facility attacked

Following a major terrorist attack that wiped out 20% of Saudi Arabia’s oil production on Saturday, global oil prices have surged.

Bloomberg reported on Monday morning that oil has risen by almost $12 a barrel after the London stock exchanged opened.

The terrorist attack sent a major shock to international markets, Brent Crude rose by as much as 20% to $72, the highest level since the first Gulf War.

Energy analyst at Credit Suisse Group AG, Saul Kavonic told Bloomberg, “We have never seen a supply disruption and price response like this in the oil market. Political risk premium are now back on the oil market agenda.”

Ranko Berich, Head of Market Analysis at Monex Europe said, “The weekend’s attacks in Saudi Arabia will have two consequences for financial markets and the global economy: the immediate oil price shock, which has already hit, and the longer-term costs of increased tensions or even a possible outbreak of conflict in the Persian Gulf.

“The size of the initial shock to oil prices was immense. Spot prices have surged by amounts unprecedented since the 1990 Iraq invasion of Kuwait, while Brent crude oil futures recorded their largest intraday surge since trading began in 1988, although since then the initial knee jerk surge has been pared back. Despite the dramatic oil price moves, we’ve seen a pretty typical FX market response. Currencies linked to major oil exporting economies such as CAD and NOK have enjoyed a substantial bump, but nothing historic.

“In the short term there are two key questions for markets: how long will the disruption to Saudi Arabian supply last, and to what extent strategic reserve releases, particularly from the United States, dull the impact of the supply shock? More volatility can be expected as markets attempt to price both of these currently unknown factors.

“Oil price shocks have often preceded global economic slowdowns and given the current worsening in the global economic outlook, these developments look ominous. Although reserve releases will dull the current supply shock and Saudi production will return to normal before long, the attacks may have significant ongoing consequences.

“Tensions in the Gulf have the potential to cause oil to trade with a premium – as the sharp drop in crude oil prices after the sacking of Iran hawk John Bolto proves. The weekend’s attacks are likely to once again raise US-Iran tensions and therefore could keep oil trading at a premium well beyond the actual supply disruption.”

The attack on the Saudi oil facility was led by Iranian backed Houthi rebel group who are based in Yemen. The terror group has said they will continue to launch attacks on Saudi’s oil facilities. The Houthis operated a drone attack on two Saudi Aramco oil plants on Saturday.

President Trump has warned Iran that the US will retaliate if it is proven that Iran is behind the drone attack.