Oil prices will jump today as markets awake to the dramatic impact of a co-ordinated drone attack on Saudi Arabian oil facilities on the weekend.
At first, the attack seemed like to be another in the occasional attacks launched in recent months by Houthi rebels in Yemen, but western media reports say the attack and subsequent damage is more much bigger than that.
Reuters reported that “Saudi Arabia’s oil production and exports have been disrupted, said three sources familiar with the matter, after drone attacks on two Aramco plants on Saturday, including the world’s biggest oil processing facility.
“One of the sources said the attacks have impacted 5 million barrels per day of oil production — almost half the kingdom’s current output. The source did not elaborate.
Aramco operates the world’s largest oil processing facility and crude oil stabilisation plant in the world at Abqaiq, in eastern Saudi Arabia.
Other news reports said the attack started large fires at Hijra Khurais, one of Saudi Arabia’s largest oil fields, and at the Abqaiq crude stabilisation facility. Khurais produces 1.5 million barrels a day while Abqaiq helps produce up to 7 million barrels a day.
A Houthi spokesman said the attack involved 10 drones. Published images of the fire at the Abqaiq facility showed what appeared to be a huge blaze along with plumes of smoke. Marketwatch.com said the smoke from the fires was visible in satellite photos.
That’s why the price weakness on Friday in global markets will have little meaning when trading resumes across Asia this morning. That’s where the bulk of Saudi production is sold these days.
West Texas Intermediate crude for October delivery fell 24 cents, or 0.4%, to settle at $54.85 a barrel in New York on Friday, down around 3% for the week.
November Brent crude shed 16 cents, or 0.3%, to $US60.22 a barrel for a weekly fall of 2.1%.
The attack on the Saudi facilities could make irrelevant the latest warnings from the International Energy Agency for a growing surplus in global oil supplies in the next year.
The International Energy Agency said that supplies from outside of OPEC would rise by 2.3 million barrels a day in 2020, from 1.9 million barrels a day this year.
The IEA left its daily global demand growth forecast at 1.1 million for 2019 and 1.3 million barrels for 2020.
OPEC on Wednesday cut its forecast for global oil demand growth this year and next, citing weaker-than-expected data in the first half of this year from various global demand centres and slower economic growth projections.
Reuters pointed out that the United States the only holder of the global supply cushion via its ability to raise own output or to soften sanctions against other major oil producers.
Reuters said industry sources have said Saudi Arabia will be able to restore supply within days. A prolonged supply outage will have a major bullish impact on oil prices, which in turn will spur further gains in U.S. shale production.
The US briefly topped Saudi Arabia as the world largest crude exporter this year (in June).
The easiest way to assure plentiful supplies globally would be for the US to soften or remove sanctions on Iranian production and exports. Perhaps with the extreme rightwinger, John Bolton out of the national security advisor role with President Trump, that might now happen.
