Oil posted its biggest-ever intraday jump, briefly surging above US$71 a barrel after a strike on a Saudi Arabian oil facility removed about 5 percent of global supplies and raised the specter of more destabilization in the region.
In an extraordinary start to trading yesterday, London’s Brent futures leaped almost US$12 in the seconds after the open, the most in dollar terms since their launch in 1988.
Prices later pulled back about half of that initial gain of almost 20 percent, but are still heading for the biggest advance in almost three years.
For oil markets, it is the single worst sudden disruption ever, and while Saudi Arabia might be able to return some supply within days, the attacks highlight the vulnerability of the world’s most important exporter.
They also revive political risk in prices, with the heightened danger of conflict in a region that holds almost half of global crude reserves.
“We have never seen a supply disruption and price response like this in the oil market,” said Saul Kavonic, an energy analyst at Credit Suisse Group AG. “Political-risk premiums are now back on the oil-market agenda.”
The dramatic move in oil reverberated around financial markets.
Haven assets including gold and Treasury futures surged on concern over the geopolitical fallout from the attacks. Currencies of commodity-linked nations including the Norwegian krone and the Canadian dollar also advanced.
US gasoline futures jumped almost 13 percent before paring their increase to about 8 percent.
State energy producer Saudi Aramco lost about 5.7 million barrels a day of output on Saturday after 10 unmanned aerial vehicles struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-largest oil field in Khurais.
The disruption surpasses the loss of Kuwaiti and Iraqi petroleum output in August 1990, when then-Iraqi president Saddam Hussein invaded his neighbor, and the loss of Iranian oil production in 1979 during the Islamic Revolution.
“The vulnerability of Saudi infrastructure to attacks, historically seen as a stable source of crude to the market, is a new paradigm the market will need to deal with,” said Virendra Chauhan, a Singapore-based analyst at industry consultants Energy Aspects Ltd. “At present, it is not known how long crude will be offline for.”
Saudi Arabia can restart a significant volume of the halted oil production within days, but needs weeks to restore full output capacity, people familiar with the matter said.
The kingdom — or its customers — might use stockpiles to keep supplies flowing in the short term.
Aramco could consider declaring itself unable to fulfill contracts on some international shipments — known as force majeure — if the resumption of full capacity at Abqaiq takes weeks.
However, that would rattle oil markets further and cast a shadow on Aramco’s preparations for what could be the world’s biggest initial public offering.
It is also set to escalate a showdown pitting Saudi Arabia and the US against Iran, which backs proxy groups in Yemen, Syria and Lebanon.
Iran-backed Houthi rebels in Yemen claimed credit for the attack, but US President Donald Trump and Secretary of State Mike Pompeo have already pointed the finger directly at Iran.
“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the kingdom’s infrastructure — that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Ed Morse, Citigroup Inc’s global head of commodities research, wrote in a note.
Brent jumped more than 19 percent to US$71.95 a barrel on ICE Futures Europe, its biggest gain in percentage terms since 1991.
In the ensuing hours, it pared that advance to trade up 9.5 percent at US$65.92 a barrel as of 10:25am in London.
The global benchmark crude could rise above US$75 a barrel if the outage at Abqaiq lasts more than six weeks, Goldman Sachs Group Inc said.
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