Oil prices up as drone attack jolts supply

Global energy prices spiked more than 14% Monday after a weekend attack on key oil facilities in Saudi Arabia caused the worst disruption to world supplies on record.

It was an increase on par with the 1991 Gulf War and analysts said heightened tensions in the Middle East could keep prices elevated for the foreseeable future. The wider economic fallout will depend on just how long the Saudi supply disruption lasts.

U.S. crude oil jumped more than $8 to close at $62.90 a barrel, and Brent picked up nearly $9 per barrel, to reach $69.02.

The attack on Saudi Arabia’s largest oil processing plant disrupted more than half of its daily exports, halting 5% of world crude oil output.

It followed a string of other attacks in the Persian Gulf, which threatened global oil supplies and stirred tensions in the region. But the scope of the most recent incident was more severe. That’s especially worrying for oilthirsty Asia.

Asia is the biggest consumer of Persian Gulf oil, absorbing three-quarters of the oil that traveled out of the region last year. Saudi Arabia provides about a fifth of China’s crude imports, more than 37% of Japan’s and almost a third of South Korea’s.

And while oil production in the U.S. is booming, it is not enough to replace what could potentially be lost if there are further disruptions in the Middle East. It also is not the type of crude oil everyone wants.

Most of the new oil produced in the U.S. is light and sweet. But many oil refineries along the U.S. Gulf Coast are designed to process heavy crude so it imports some of that from Saudi Arabia while shipping some of its own light, sweet crude to Europe.

The U.S. still imports a hefty amount of oil, and in 2018 it brought in 2.34 million barrels of oil per day, representing 11% of the petroleum consumed in the country.

The oil price spike comes at a risky time for the U.S. economy. Businesses have already reduced their investment spending as the U.S.China trade war has raised costs and uncertainty.

Higher oil prices, which typically push up gasoline costs, erode Americans’ spending power. That could also weigh on growth at a time when hiring is slowing down and consumers may face higher prices from new tariffs on Chinese imports.

Asked about oil prices on Monday, President Donald Trump said “Well, they haven’t risen very much. And we have the strategic oil reserves, which are massive, and we can release a little bit of that.”