Oil prices rallied early on Monday after weekend attacks on Saudi Arabia’s crude, according to ZAWYA
Brent crude soared 13% at $68.06 after earlier rising to $71.95, it said.
U.S. crude futures were last up 11% at $61.10 a barrel.
The coordinated strikes on key Saudi Arabian oil facilities (at 2 Aramco sites) knocked out half of the country’s oil capacity, more than 5 million barrels a day. That’s about 5% of the world’s daily global oil supply, so oil prices shot up.
Christopher Dembik, Head of Macro Analysis, Saxo Bank said: “Following the events in Saudi Arabia, well-informed market participants expect that oil prices may increase by $5-10 per barrel in the Asian session.
There is higher pressure on Chinese Yuan (CNY), but also negative for Turkish Lira (TRY) and Indian Rupee (INR) due to elevated current account deficits.
Too early to assess the exact macro impact but it is bright clear we don’t need an oil shock.”
According to Hussein Sayed, Chief Market Strategist at FXTM, this week was supposed to be centered on monetary policy decisions from the US, UK, Japan and Switzerland central banks, Brexit negotiations and developments in US-China trade talks.
The weekend’s drone attacks on Saudi Arabia’s critical crude processing plant have now taken the spotlight.
“Such an event may have far more catastrophic consequences on the world economy than any other event which has occurred over the past couple of years,” Sayed Said.
He added that the attack has caused a disruption of 5.7 million barrels a day and oil prices soared 20% as markets reopened to trade near $72 a barrel but gave up half its gains five hours later.
“The price shock seen today is the largest in almost three decades since Saddam Hussein invaded Kuwait back in the 1990s. Such a reaction in price suggests that we are currently facing an unprecedented threat to oil supplies that could reverberate through the global economy,” Sayed said.
“The market has suddenly shifted from being oversupplied to undersupplied, and even if we combine all the spare global capacity available, that won’t make up half the current disruption. However, Saudi Arabia has a significant volume of oil in storage that will keep exports flowing and the US has stated it may even tap into its Strategic Petroleum Reserve if needed.”
The longer the disruption goes on, the more damage will be felt.
“Three days ago, oil prices hitting $100 a barrel was almost an impossible scenario. Not anymore. That’s not just because of the current disruption from Saudi Arabia, but the fact that the chances of military conflict in the region have risen dramatically. If investors begin pricing in the possibility of an attack against Iran’s crude infrastructure, oil may quickly hit the $100 benchmark.”