SINGAPORE/LONDON: Oil prices surged nearly 20 per cent at one point on Monday, with Brent crude posting its biggest intraday gain since the Gulf War in 1991, after an attack on Saudi Arabian oil facilities at the weekend halved the kingdom’s production.
Prices came off their peaks after US President Donald Trump authorised the use of his country’s emergency stockpile to ensure stable supply.
Brent crude futures, the international benchmark, rose as much as 19.5 per cent to $71.95 per barrel, the biggest intraday jump since Jan. 14, 1991. By 1100 GMT, the contract was at $65.38, up $5.16, or 8.6 per cent.
US West Texas Intermediate (WTI) futures climbed as much as 15.5 per cent to $63.34, the biggest intraday percentage gain since June 22, 1998. The contract was later at $59.36, up $4.51 or 8.22 per cent.
Saudi Arabia is the world’s biggest oil exporter.
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. 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 volumes “may take months”.
“If these outages are lengthy, Saudi Aramco will struggle to hit export specification for its Arab Light and Arab Extra Light streams, and may even be forced to declare force majeure on some of these exports,” consultancy Energy Aspects said in a note.
“We expect the IEA and US DOE to also release strategic stocks to fill the gap if the Saudi outage is prolonged,” it said, referring to the International Energy Agency and the US Department of Energy.
Trump said he had approved the release of oil from the US Strategic Petroleum Reserve if needed. He also said the United States was “locked and loaded” for a potential response to the attack.
It was the threat of retaliation and escalation of the tension and conflict in the Middle East, however, that has kept prices high, irrespective of the relief from global stockpiles.
“This justifies a risk premium on the oil price, so prices are initially unlikely to return to the levels at which they were trading before the attacks,” said Carsten Fritsch, oil analyst at Commerzbank AG in Frankfurt, Germany.
The attack on plants in the heartland of Saudi Arabia’s oil industry, including the world’s biggest petroleum-processing facility at Abqaiq, came from the direction of Iran, and cruise missiles may have been used, a US official said.
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 said.
Major importers of Saudi crude, such as India, China, Japan and South Korea, will be the most vulnerable to the supply disruption. — Reuters
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