Oil prices spike af­ter at­tack on Saudi plant

Mar­kets fell as pos­si­ble short­age threat­ens economies

The Morning Call - - BUSINESS CYCLE - By Tali Ar­bel

en­ergy prices spiked Mon­day by 15% af­ter a week­end at­tack on key oil fa­cil­i­ties in Saudi Ara­bia caused the worst dis­rup­tion to world sup­plies on record.

The at­tack on the coun­try’s largest oil pro­cess­ing plant halted more than half of its daily ex­ports, re­sult­ing in the loss of 5% of world crude oil out­put. That’s es­pe­cially wor­ry­ing for oil-thirsty Asia, where China, Japan, South Korea and In­dia are ma­jor cus­tomers of Saudi oil.

The price of U.S. crude and Brent crude oil were both up 15% in mid­day trad­ing.

“The at­tacks this time posed a se­ri­ous threat to key in­ter­na­tional en­ergy in­fra­struc­ture, and we ex­press con­cern that they un­der­mine the en­ergy se­cu­rity of the en­tire world and sta­bil­ity in the re­gion,” South Korea’s For­eign Min­istry said in a state­ment.

“We con­demn any sim­i­lar acts,” it said.

Oil prices spiked shortly af­ter trad­ing be­gan Mon­day, with U.S. crude jump­ing more than 15% and Brent leap­ing nearly 20%. But the ini­tial surge mod­er­ated on talk of tap­ping strate­gic re­serves to weather any short­Global falls.

In mid­day trad­ing, U.S. crude shot up again, ad­ding more than $8 per bar­rel, to about $63, and Brent picked up more than $9 per bar­rel, to $69.

Ye­men’s Iran-backed Houthi rebels claimed re­spon­si­bil­ity for the at­tack on the Saudi Aramco plant.

“To take Saudi oil pro­duc­tion down 50%, that’s shock­ing,” said Jonathan Aron­son, a re­search an­a­lyst at Cor­ner­stone Macro.

Re­fin­ers, who would profit from higher prices, saw their share prices jump, with China’s CNOOC up 3.6% and PetroChina gain­ing 4.3%. Russia’s Ros­neft’s shares gained 4.8% while Aus­tralia’s Wood­side Petroleum ticked up 4.3%. Air­line shares de­clined in an­tic­i­pa­tion of higher fuel costs.

The at­tack may add to anx­i­ety about the sta­bil­ity of the world’s oil re­serves given the ten­sions rum­bling in the re­gion.

“Saudi Ara­bia has been a very re­li­able sup­plier of oil in the world,” said Jim Burkhard, who heads crude oil re­search for IHS Markit. He said the at­tack added a “geopo­lit­i­cal pre­mium” back into the price of oil.

Oil prices tend to hurt the econ­omy as con­sumer costs rise, and Asia is the re­gion most vul­ner­a­ble to big sup­ply dis­rup­tions.

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. Japan is nearly 100% de­pen­dent on im­ports.

Higher oil prices will in­crease costs through­out the pro­duc­tion chain for East Asian coun­tries that are both ex­port-ori­ented and de­pen­dent on oil im­ports, said Fran­cis Lun, a Hong Kong­based an­a­lyst.

“It will in­crease the price of every­thing pro­duced, from elec­tron­ics to med­i­cal equip­ment to food and every­thing else,” Lun said.

The world’s rich­est coun­tries have oil re­serves of more than 2 bil­lion bar­rels.

Ac­cord­ing to the Joint Or­ga­ni­za­tion Data Ini­tia­tive, Saudi Ara­bia has nearly 27 days worth of re­serves. It holds re­serves at home and in Egypt, Japan and the Nether­lands. That can al­le­vi­ate some con­cerns.

Mean­while work was un­der­way to re­store pro­duc­tion at the Abquaiq plant. The Wall Street Jour­nal re­ported Sun­day that Saudi of­fi­cials said a third of crude out­put would be re­stored by Mon­day. Bring­ing the en­tire plant back on­line may take weeks. Of­fi­cials said they would use other fa­cil­i­ties and ex­ist­ing stocks.

Chris Mid­g­ley, global head of an­a­lyt­ics for S&P Global Platts, es­ti­mates prices could surge into the “high $70” per bar­rel range. It could go even higher if dis­rup­tions are pro­longed, but that is not ex­pected, he said in a re­search note.

The sit­u­a­tion is bet­ter to­day than it would have been a decade ago, thanks to the U.S. en­ergy boom.

The U.S. has a cush­ion be­cause it and Canada both pro­duce plenty of oil, leav­ing the U.S. less re­liant on the Mid­dle East. But it’s still a global mar­ket. “If you take oil any­where out of sys­tem it af­fects ev­ery­body,” said Burkhard.

Be­fore Mon­day, Al­len­town gas prices had fallen 0.7 cents per gal­lon in the last week, av­er­ag­ing $2.66 per gal­lon, ac­cord­ing to GasBuddy’s sur­vey of 403 sta­tions. Area prices are 12.9 cents per gal­lon below last month’s prices and 34.9 cents per gal­lon lower than a year ago.

The Morn­ing Call contribute­d to this re­port.


Global stock mar­kets sank Mon­day af­ter crude prices surged af­ter an at­tack on a Saudi oil pro­cess­ing fa­cil­ity.

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