Saudi Attacks Cause Biggest Oil Price Boost in Over 30 Years

Monday September 16, 2019

Following one of the biggest geopolitical shocks in recent memory, Brent crude on Monday logged its biggest price increase in over 30 years, in the wake of the weekend attack on Saudi Arabia crude facilities that halved the kingdom's production and is causing widespread expectations of retaliation.

The attack on state-owned producer Saudi Aramco's crude-processing facilities at Abqaiq and Khurais cut output by 5.7 million barrels per day (bpd) and prompted Washington to state that evidence points to Iran as the culprit; as pundits wait and see what the U.S. and the Saudis do next, Aramco sources said a full return to normal production "may take months."

Accordingly, Brent on Monday soared by $8.80, or 14.6 percent, its biggest one-day percentage gain since at least 1988, to settle at $69.02 per barrel; Brent futures saw more than 2 million contracts traded, an all-time daily volume record.

West Texas Intermediate also skyrocketed by $8.05, or 14.7 percent - the biggest one-day percentage gain since December 2008, to settle at $62.90 per barrel.

Various scenarios about how the attacks will affect world markets are being discussed, but data shows that crude cargo booking activity and freight rates for shipments from the U.S. Gulf Coast rose over the weekend and on Monday, and U.S. president Donald Trump approved the release of oil from the Strategic Petroleum Reserve, which holds more than 640 million barrels of crude oil.

Major importers of Saudi crude, including India, China, Japan, and South Korea, will be the most vulnerable to supply disruption, and South Korea too is considering releasing oil from its strategic reserves.

Shifting from his usual stance, Trump on Monday told media that oil prices "haven't risen very much and we have the strategic oil reserves, which are massive, and we can release a little bit of that, and other countries ... can be a little bit more generous with the oil, and you'd bring it right down; that's not a problem."

However, Andy Lipow, president of Lipow Oil Associates, on Monday said U.S. gas prices will increase about 20 cents per gallon "starting tomorrow."

Media who up until recently supported the argument that the world was swimming in too much oil worried on Monday that the weekend attacks removed almost all the spare capacity available to compensate for any major disruption in oil supplies worldwide.

Reuters noted that Kuwait, the United Arab Emirates, Iraq, and Angola may "now bring that production online to help plug some of the gap left by Saudi Arabia - but it won't be enough."

However, the news agency added that U.S. shale producers "can move quickly to pump more when prices rise, and can bring production online in a matter of months; that is a much faster time line than most traditional oil production."

Meanwhile, Todd Rosenbluth, head of ETF and mutual fund research for CFRA, mused that "Supply and demand is obviously the key thing that happens within the energy space.

"Now, we've seen supply come off a bit; demand is continuing to do well, [and] if we see the global economy strong, we could see that continue."