Oil prices rose by nearly a fifth after a weekend attack on oil operations in Saudi Arabia, significantly reducing crude oil production and raising fears of increasing military tensions in the region.
The drone attacks caused explosions and fires in two of the kingdom's main production and processing facilities and reduced oil production by more than half. Yemen's rebel Houthi group has claimed responsibility for the attacks, revealing the vulnerability of the largest oil producer in the Middle East.
Saudi state-owned oil company Aramco said production was reduced by 5.7 million barrels per day, a volume equal to more than 5% of global demand and more than all Canadian production. Officials said the company hoped to restore about a third of them by the start of this week.
The accident marks a new dangerous phase in a proxy war in which Saudi Arabia was camped in Yemen. Rekindles fears of global supply disruptions due to military hostilities, especially if more tensions spread across the region. US Secretary of State Mike Pompeo blamed Iran, which is allied with the Houthi. Iran has rejected the request.
Saudi Arabia, the largest producer of the Organization of Petroleum Exporting Countries, was taken for granted as a central oil bank due to its ability to produce reserve capacity when needed to calm the markets, has said Michael Tran, commodity strategist at RBC Capital Markets in New York. This flexibility is now under discussion, especially as his fellow OPEC members struggle with various political and production problems.
"This is no longer a hypothetical or a black swan in terms of thinking about how vulnerable oil production is on a global basis," said Tran on Sunday. "The geopolitical risk premium has been largely absent or even extinguished by oil prices for most of the last five years of falling oil prices. So, at a minimum, you should see a bid risk premium reinstated in the market. "
The Brent international benchmark rose 19% to $ 71.95 a barrel while Asian oil markets opened on Monday.
Dan Tsubouchi, chief strategist of the Stream Asset Financial Management market in Calgary, said that there will probably be at least $ 10 in earnings, as US satellite images released on Sunday show apparent damage to the main spherical oil treatment units in the US. oil processing plant, which could mean weeks or months of repairs.
"And if Pompey convinces Saudi Arabia that Iran did it deliberately and dumped resources, then there will be some geopolitical risk payment on the oil price. It's a huge joker," said Tsubouchi .
On Friday, Brent closed 16 cents at $ 60.22 a barrel. Almost 20% had fallen since the end of April in a context of global economic concerns, partly due to commercial tension.
The strikes, which the Saudi chief executive of Aramco Amin Nasser called "terrorist attacks with bullets", damaged the Abqaiq oil facility, the company's largest facility. They also targeted the Khurais oil field, which has a capacity of 1.5 million barrels per day.
Aramco has not yet provided an estimate of the times to return to full production, which stood at 9.6 million barrels a day in August. Saudi Arabia exports more than seven million barrels a day and officials said the country will use the reserves in storage to keep the market replenished.
"But I think the most important thing about the physical impact is the psychological impact it will have on the market. The Abqaiq processing plant is the absolute nerve center of the indispensable world oil producer and exporter, "said Derek Brower, director of the RS Energy Group in London.
"Anyone who has attacked, whether it is Iran or Houtis supported by Iran or otherwise, has shown that they have the capacity to close it and this is a serious shock to the oil market in terms of psychology."
Tension in the Middle East has intensified among the seizures of western-owned tankers by Iran following the US withdrawal from the nuclear deal and its sanctions on the manufacturer, Brower said.
In terms of actual crude oil flows, Saudi Arabia's main customers are Asian countries as US dependence on OPEC supplies has declined over the past decade as its production has more than doubled.
Canada's ability to be a "first responder" to recover any supplies lost due to interruptions is prevented by the lack of important pipeline capacities on the west coast of Alberta due to delays in the construction of the Trans Expansion Mountain said Tran.
The attacks complicate Saudi Arabia's recently restarted plans to launch an initial public offer for 5% of Saudi Aramco and could delay the float until more is known about the damage and the risk to the good more important than the company, said Tsubouchi.
With a Reuters report
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