Crude prices rocket on low output, war fears

Brent recovers after 20% fall as US promises supplies

London, Sept. 16: Brent crude surged by 20 per cent on Monday-- the biggest gain since the 1991 Gulf War--after weekend drone attacks on two Saudi oil facilities halved output in the world's top crude exporter, fuelling fresh geopolitical and growth fears.

WTI oil also soared 15 per cent after President Donald Trump warned that the US was “locked and loaded” to respond to the attacks that Washington blamed on Iran.

Both key oil contracts pared gains but were still up by more than 8 per cent around 1030 GMT.

The price-surge weighed across world stock markets on fears that a sustained higher cost of crude could further impact weak global economic growth.

Wall Street sank into the red in early trade, threatening to break the eight-day winning streak for the benchmark Dow Jones Industrial Average.

In India, the rupee halted a seven-day rally and bonds declined. The currency fell 0.9 per cent, or 68 paise, to close at 71.5963 a dollar and the benchmark 2029 bond

yields rose eight basis points to 6.72 per cent. The Sensex declined 0.7 per cent.

“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.

In foreign exchange, the dollar was down against the euro and yen, while the pound slid. Gold, which is seen as a haven in times of geopolitical and economic unrest, won 1 per cent to $1,503.70 an ounce.

The Iran-aligned Houthi movement that controls Yemen’s capital claimed responsibility for the attack on Saudi Arabia that damaged the world’s biggest crude oil processing plant and shut 5 per cent of global crude. Iran denied blame and said it was ready for “full-fledged war”.

Two sources briefed on state oil company Saudi Aramco’s operations told Reuters it might take months for Saudi oil production to return to normal. Earlier estimates had suggested it could take weeks.

Oil prices eased after Trump announced that he would release US emergency supplies and producers said there were enough stocks stored up worldwide to make up for the shortfall. But traders still spoke of a long-term price increase as markets absorb the proof that global supply can be so sharply hit.

“There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!” Trump said on Twitter on Sunday.

While Iran has denied blame for the attacks, its Yemeni allies have promised more strikes to come.

—Agencies