Saudi oil attacks raise spectre of oil at $100 per barrel, say analysts

Smoke is seen following a fire at Aramco facility in the eastern city of Abqaiq, Saudi Arabia, September 14, 2019. Photo: Reuters
The oil market will rally by $5-10 per barrel when it opens on Monday and may spike to as high as $100 per barrel if Saudi Arabia fails to quickly resume oil supply lost after attacks over the weekend, traders and analysts said. Attacks on two plants at the heart of the kingdom’s oil industry on Saturday knocked out more than half of Saudi crude output, or 5 per cent of global supply.

Industry sources have said it may take weeks to bring production fully online.

Bob McNally, Rapidan Energy

 
Crude prices would spike by at least $15-20 per barrel in a seven-day disruption scenario and go well into triple digits in a 30-day scenario. “This does not include what are likely to be large (if difficult to model or predict) premia to reflect zeroing out of global spare production capacity amidst ongoing disruption risks, hoarding, and panic sentiment.”

Greg Newman, Co-CEO Onyx Commodities

Expects Brent futures to open $2 per barrel up and close $7 to $10 per barrel higher on Monday. The market could see a return to $100 per barrel if the issue cannot be resolved in the short term.

In the swaps market, Dubai timespreads could see a $1.50-$2 barrel backwardation as end-users scramble to cover shorts for short-term loading.

Refined product prices will be strong, with particular emphasis on high-sulphur fuel oil given current tightness and that it is the refinery product most closely linked to Saudi heavy crude.

Ayham Kamel, Eurasia Group

“A small $2-$3 per barrel premium would emerge if the damage appears to be an issue that can be resolved quickly, and $10 if the damage to Aramco’s facilities is significant.” “The scale of (the) attack will encourage markets to re-examine the need for considering an oil geopolitical risk premium ... The attacks could complicate Aramco’s IPO plans given rising security risks and potential impact on its valuation.” “The US would only release crude from its strategic reserves if damage to infrastructure appears critical or oil prices spike significantly.”

Samuel Ciszuk, founding partner, ELS Analysis

“The outage of 5 million bpd (barrels per day), roughly half of the current Saudi production level and about 5 per cent of global supply, is very large by historic standards. It would in relatively few weeks start to put a stress on the market." “This incident is a very uncomfortable wake-up call to radically higher risk premiums on Gulf production."

Christyan Malek, JPMorgan

 “I'd expect a $3-$5 move in oil prices in the short term. The market has been sleep-walking in risk premium in the region, disproportionately focusing on risk to demand growth and shale oil supply." “This attack introduces a new, irreversible risk premium into the market." Expects oil to rise to $80-90 a barrel over the next three-six months as the market turns its focus to geopolitics.

 
Gary Ross, Black Gold Investors

 
“These attacks are difficult to stop and could occur periodically. The market has to price this risk in.”