Tensions Rise, Crude Falls, and Analysts Divided on Impact of the Saudi Refinery Bombings

But most experts agree that fundamentals remain soft: File Image/Pixabay

More losses for crude occurred on Wednesday in the wake of Saudi Arabia's announcement during the previous session that it had already substantially restored production to its processing facilities that were attacked by bombs and drones over the weekend.

However, considering tensions are rapidly escalating between the U.S. and Iran, the latter of which has been accused of staging the attacks, traders could easily repeat Monday's performance and send prices skyrocketing once again.

Brent on Wednesday ended the session down 95 cents, or 1.5 percent, at $63.60 per barrel, while West Texas Intermediate settled $1.23, or 2.1 percent, lower at $58.11.

U.S. president Donald Trump on Wednesday he would provide more details about increased sanctions on Iran within 48 hours as retaliation for the attacks; for its part, the Islamic republic vowed to react swiftly if more sanctions were imposed.

Meanwhile, the analytical community as usual is sending mixed signals about the state of the crude market in the wake of the attacks: John Kemp, commodities analyst for Reuters, mused that "the attacks amount to a significant negative supply shock.......the extended production shortfall will have to be met from a combination of commercial inventory drawdowns, releases from government-controlled emergency stocks, and price-driven demand restraint.

"Substantial price increases signal the need for consumers to use less fuel until the facilities can be repaired or alternative production becomes available."

But Kemp's portrayal of dire shortages - a scenario refuted by the Saudis and the U.S. even before the kingdom revealed its restoration prowess - was contrasted sharply by Goldman Sachs, which on Wednesday stated in a note, "The global oil market has enough resources available even outside of shale to balance a large outage without requiring an OECD SPR release (which remains a significant additional buffer to balance the market)."

The bank added that Brent prices are likely to remain below $75 a barrel even if the outage proves to be persistent.

Carsten Fritsch, energy analyst at Commerzbank, was even more aggressive in his forecast for oil over the long term: while stating on Wednesday that "Recent attacks on oil facilities in Saudi Arabia have painfully demonstrated the risks to oil supply, which is why short-term price spikes are possible at any time," he went on to say that his bank does not consider the recent price surge to be sustainable and expects Brent to fall to $60 per barrel next year, due to weakening fundamentals.