Oil prices rocket as drone attack slashes Saudi output

LONDON: Oil prices saw their biggest daily gain since the 1991 Gulf War on Monday after drone attacks on two Saudi oil facilities halved output in the world's top crude exporter, fuelling fresh geopolitical and growth fears. Europe's benchmark Brent crude surged by 20 percent and US counterpart WTI by 15 percent as commodities trading got underway after President Donald Trump warned that the US was "locked and loaded" to respond to the attacks that Washington blamed on Iran. Both contracts later came off their peaks, but were still up around 12 percent at the close of European trading.

The price surges weighed across world stock markets on fears that a sustained higher cost of crude could impact already weakening global economic growth. "Growing tensions in the Middle East are another headwind for the global economy in already uncertain times and a full-blown conflict could trigger another leg in the global downturn," said Jennifer Mckeown, head of Global Economics at Capital Economics. However, share prices of energy majors jumped, with traders seeing higher profits down the line for the likes of BP and Shell.

In foreign exchange, the dollar was down against the yen and up against the euro, while the pound slid, with the EU saying that Britain had offered no new, viable Brexit proposals after Prime Minister Boris Johnson held Brexit deal talks with EU chief Jean-claude Juncker.

Gold, which along with the yen is seen as a haven in times of geopolitical and economic unrest, rose. Markets' focus was firmly on oil however after the weekend attack that was claimed by Tehran-backed Huthi rebels in neighbouring Yemen, where a Saudi-led coalition is bogged down in a five-year war.

"Oil price shocks like this are bad news for growth," Neil Wilson, chief market analyst at trading group Markets.com, said.

"It raises stagflation risks too — higher oil prices suppress growth and raise inflation. Of course it depends how

long this lasts, does the riskpremium mean higher prices for the rest of the year or does it fade quickly if it comes back on stream this week?"

Saudi Arabia was on Monday expected to restore at least a third of the production lost to the attacks, according to experts and reports. The Saturday strikes on national energy giant Aramco's Abqaiq processing plant and Khurais oil field knocked 5.7 million barrels per day off production, more than half of the OPEC kingpin's output.

Saudi Energy Minister Prince Abdulaziz bin Salman on Sunday said the kingdom would use its vast inventories to partially compensate for the

lost production and the US also authorised the release of its reserves.