Crude oil prices spike after attack on Saudi facilities, stocks weaken

Wide UK-EU rift over Brexit terms kicks pound lower

NEW YORK, Sept 16, (RTRS): Oil prices soared on Monday after attacks on crude facilities in Saudi Arabia sparked worries over the impact of an oil shock on economic growth, halting a positive run in world stocks as investors reached for less risky assets.

Increased demand for safe-haven US debt pushed Treasury yields lower, while gold and the safe-haven currencies, including the Japanese yen and Swiss franc, strengthened.

The attack on Saudi Arabia shut 5% of global crude output. US officials blamed Iran and President Donald Trump said Washington was “locked and loaded” to retaliate.

Oil prices surged nearly 20% at one point on Monday, with Brent crude posting its biggest intraday gain since the 1990-1991 Gulf crisis, before paring gains to trade up about 10 percent on the day.

Trump approved the use of US emergency oil reserves to ensure stable supply, helping steady oil prices some.

US crude rose 11.43% to $61.12 per barrel and Brent was last at $67.26, up 11.69% on the day.

Saudi Arabia officials are discussing delaying Aramco’s initial public offering, the Wall Street Journal reported on Monday, citing people familiar with the matter. The upheaval in the oil market coupled with and poor economic data from China served to sour investors’ appetite for risky assets.

The MSCI world equity index, which tracks shares in 47 countries, snapped a five-day winning streak to trade down 0.29%.

Wall Street slipped as the jump in the price of oil presented yet another headwind for a global economy that is already buffeted by deteriorating manufacturing activity and elevated trade tensions, analysts said.

The Dow Jones Industrial Average fell 108.16 points, or 0.4%, to 27,111.36, the S&P 500 lost 6.99 points, or 0.23%, to 3,000.4 and the Nasdaq Composite dropped 15.73 points, or 0.19%, to 8,160.99.

The pan-European STOXX 600 index lost 0.37%.

US Treasury yields slipped with benchmark 10-year notes up 11/32 in price to yield 1.8607%.

In FX markets, currencies linked to the price of oil rose, while the Japanese yen and Swiss franc strengthened as nervous investors sought safety.

Gold rose after the attack on oil facilities in Saudi Arabia inflamed worries over the stability of the Middle East, boosting demand for assets seen as a haven from risk. Spot gold was up 1.02% at $1,503.69 per ounce.

US

US stocks fell on Monday on global growth worries after weekend attacks on Saudi Arabia’s crude facilities hit 5% of the world’s supply, but a sharp jump in crude prices lifted beaten-down energy stocks and kept losses in check.

The attack on the world’s biggest oil exporter sent oil prices up more than 20% before easing as various nations said they would tap emergency reserves to ensure stable supplies.

The S&P 500 energy, one of the worst performing sectors so far this year, soared 2.36%. Shares of Apache Corp , Marathon Oil Corp and Hess Corp jumped between 8.8% and 10.1% and were the leading gainers on the benchmark index.

Anticipation of higher fuel costs drove down shares of airlines and cruise line operators. American Airlines Group Inc , Delta Air Lines Inc and Carnival Corp fell between 2.2% and 5.1%.

Investors’ flight to safety pulled the US benchmark 10-year Treasury bond yields down from their multi-week highs, sending the interest-rate sensitive bank sub-sector down about 0.6%.

Shares of defense companies Raytheon, Lockheed Martin Corp, Northrop Grumman Corp rose between 1.1% and 2.6%. J.P. Morgan upgraded Raytheon shares to “overweight”.

At 11:34 am ET, the Dow Jones Industrial Average was down 133.39 points, or 0.49%, at 27,086.13, the S&P 500 was down 10.50 points, or 0.35%, at 2,996.89. The Nasdaq Composite was down 24.42 points, or 0.30%, at 8,152.29. Nine of the 11 major S&P sectors were trading lower.

Wall Street’s more than a decade-long rally continues to hinge on whether the Fed will keep cutting interest rates and on the progress in US-China trade talks. The recent easing in trade tensions has brought the benchmark S&P 500 about 1% below its record high.

Among other movers, General Motors Co fell 3.1% after the United Auto Workers (UAW) went on strike on Sunday, the first nationwide strike at GM in 12 years.

Advancing issues outnumbered decliners by a 1.14-to-1 ratio on the NYSE and a 1.14-to-1 ratio on the Nasdaq.

The S&P index recorded four new 52week highs and one new lows, while the Nasdaq recorded 32 new highs and 17 new lows.

UK

Britain’s blue-chip index dropped on Monday as non-oil stocks took a hit from mounting geopolitical risks and growth concerns after crude prices rose due to the attacks on Saudi Arabian production facilities.

The FTSE 100 slipped 0.6% overall, but a 4% gain in BP and 2% in Shell kept a lid on losses. The FTSE 250 was down 0.7%. The attacks on Saturday shut about 5% of global supply, triggering the biggest intra-day percentage gain in Brent crude since the Gulf War in 1991.

Crude prices retreated after US President Donald Trump approved the use of his country’s emergency oil stockpile to ensure stable supply.

Still, losses were seen across the board in all but the energy and utilities sectors. The travel and leisure index that also houses airline stocks dropped 1%.

Asia-facing financial shares and miners also weighed on the main index, after data showed that China’s slowdown deepened in August with growth in industrial production at its weakest for 171/2 years.

The FTSE banking index lost 1.7% and the mining index slid 1.6%.

Meanwhile, the FTSE oil & gas index jumped 2.8% on its best day in seven months. Premier Oil and Tullow Oil gained the most on the index.

Europe

European shares fell on Monday after four straight sessions of gains as attacks on crude facilities in Saudi Arabia and weak Chinese data added to worries over global growth while boosting shares in unaffected oil producers.

The drone attacks on the weekend, which cut more than 5% of the global oil supply, sent crude prices soaring as much as 19% and pushed the oil & gas index 2.4% higher, driving roughly 3% gains for majors BP and Shell.

UK and Irish-based explorer Tullow Oil jumped 7%, to the top of Europe’s STOXX 600, after the firm said it plans to drill three or more exploration wells in Guyana next year following its second oil discovery in the country. All other major European sectoral indexes fell, with travel and leisure the worst hit with a 1.0% slide, dragged down by shares of airlines Ryanair Holdings, Air France KLM SA and EasyJet PLC.

The pan-European STOXX 600 index and trade-sensitive German shares were both down 0.6%.

European stocks ended Friday with their fourth straight weekly gain, as investors circled back into cyclical sectors amid signs of progress in US-China trade talks.

Asia

Asian stock markets were mixed Monday after crude prices surged following an attack on Saudi Arabia’s biggest oil processing facility.

Hong Kong’s benchmark tumbled 1% while Seoul advanced and Shanghai and Sydney were little-changed. Japanese markets were closed for a holiday.

The Hang Seng index declined to 27,066.59 points following more weekend anti-government protests. The Hong Kong airport reported passenger traffic fell 12% in August from a year ago, a sign of the economic impact of demonstrations that began three months ago.

Oil

Oil prices jumped roughly 12% on Monday after an attack on Saudi Arabian crude oil facilities over the weekend sliced the kingdom’s production in half and intensified concerns of retaliatory actions in the Middle East.

Prices initially surged about 20% after the open on Sunday evening, with Brent crude posting its biggest intraday gain since the 1990-1991 Gulf crisis, before pulling back as various nations said they would tap emergency supplies to keep the world supplied with oil.

Brent crude futures rose as much as 19.5% to $71.95 per barrel, the biggest intraday jump since Jan. 14, 1991. By 12:09 p.m. EDT (1607 GMT), the international benchmark was up $7.19, or 11.9%, at $67.41 a barrel.

US West Texas Intermediate (WTI) futures climbed as much as 15.5% to $63.34, the biggest intraday percentage gain since June 22, 1998. WTI was last trading $6.30, or 11.5%, higher at $61.15 a barrel.

Oil futures climbed after the Saudiled military coalition battling Yemen’s Houthi movement said the attack was carried out with Iranian weapons, raising the prospect of a global conflict involving the United States and Iran.

Saudi Arabia is the world’s biggest oil exporter and, with its comparatively large spare capacity, has been the supplier of last resort for decades.

The attack on state-owned producer Saudi Aramco’s crude-processing facilities at Abqaiq and Khurais cut output by 5.7 million barrels per day and threw into question its ability to maintain oil exports. The company has not given a timeline for the resumption of full output. Two sources briefed on Aramco’s operations said a full return to normal production “may take months.”

President Donald Trump approved the release of oil from the U.S. Strategic Petroleum Reserve, which helped limit gains in oil prices.

Saudi oil exports will continue as normal this week as the kingdom taps into stocks from its large storage facilities, an industry source briefed on the developments told Reuters, but the attack raises concerns about how long the kingdom will be able to maintain oil shipments.

Currencies

The pound retreated further from last week’s gains following a heated remarks by Luxembourg Prime Minister Xavier Bettel on Monday showing that the gap between the British and European Union positions on Brexit remained far apart.

Bettel lashed out right after talks with Boris Johnson, saying his British counterpart had failed to propose serious alternatives to unlock a Brexit deal before the Oct 31 divorce date and seeking to blame the bloc for the “nightmare”.

Bettel was standing alone at a podium that had been prepared for comments by both leaders, but Johnson left immediately after the meeting amid a loud antiBrexit protest just outside Bettel’s office.

The pound had fallen to a three-year low below $1.20 earlier this month, then soared by over 4% for a few days after lawmakers voted to stop Johnson taking Britain out of the EU at next month’s deadline even if a transition deal is not clinched.

Also weighing on sentiment was a broader risk aversion sweeping across global markets after attacks on crude oil facilities in Saudi Arabia on Saturday.

On Monday, the pound fell 0.8% to 1.2408 after briefly popping above $1.25 in early Asian trading, its highest in nearly two months. It rose 1.7% last week. It also weakened by 0.2% against the euro to 88.68 pence.