Oil price rises pose danger to growth

GLOBAL oil prices have spiked by the most on record after drone strikes on two major Saudi Arabian facilities knocked out 5 per cent of the world’s daily crude supply.

Economists said any sustained rise in oil prices linked to the attacks will slow global growth and pave the way for more interest rate cuts.

The attacks stand as the single biggest disruption to the global oil market, surpassing that delivered by Saddam Hussein’s invasion of Kuwait in 1990 or the Islamic Revolution in Iran in 1979, an analysis by Bloomberg found.

But Australian investors took the development in their stride yesterday as strong gains by oil and gas producers, including Woodside Petroleum, Santos, Oil Search and BHP, dragged the overall market slightly higher.

The price of Brent crude, an oil benchmark, surged by almost $US12 a barrel, or 20 per cent, in the opening seconds of trade in London.

It was the biggest intraday jump in dollar terms since Brent futures were launched in 1988, and took the price of a barrel of crude to almost $US72.

The US oil benchmark, West Texas Intermediate, jumped 15 per cent in early trade to $US63.34 a barrel.

Both benchmarks eased in later trade to be about 10 per cent higher.

Iran-backed Houthi rebels in Yemen claimed responsibility for the attacks, which have halved Saudi’s daily output.

US President Donald Trump yesterday tweeted the US was “locked and loaded” but waiting to hear from Saudi Arabia about who it believed was the culprit and what action it wanted taken.

Mr Trump also said the US would release oil from its strategic stockpile to sate global demand if needed.

International energy consultancy Wood Mackenzie said the attacks, which have curtailed more than 5 million barrels of daily oil production, would have a long-term implications on the price.

Global inventories could not cover the supply gap for long and oil-producing nations had limited capacity to up production, oil markets vice-president Alan Gelder said.

Commsec chief economist Craig James said a sustained lift in oil prices would weigh on the global economy and open the way for further interest rate cuts from central banks.

AMP Capital chief economist Shane Oliver said a longterm rise in oil prices would weigh on the global economy and consumer spending in Australia, providing a headache for the Reserve Bank.

“It’s another threat to Australian growth,” he said.