SINGAPORE (BLOOMBERG) – Brent crude surged the most on record after a drone strike on a Saudi Arabian oil facility removed about 5 per cent of global supplies.
The benchmark oil futures jumped as much as US$11.73 a barrel to US$71.95 as the market opened on Monday (Sept 16) in Asia, the biggest advance in dollar-terms since futures started trading in 1988. State energy producer Saudi Aramco lost about 5.7 million barrels per day of output last Saturday after 10 unmanned aerial vehicles struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais.
For oil markets, it is the single worst sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, when Saddam Hussein invaded his neighbour. It also exceeds the loss of Iranian oil output in 1979 during the Islamic Revolution, according to data from the US Department of Energy.
“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure – that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Citigroup Inc’s Ed Morse wrote in a research note.
Saudi Arabia can restart a significant volume of the halted oil production within days, but needs weeks to restore full output capacity, people familiar with the matter said. The kingdom – or its customers – may use stockpiles to keep oil supplies flowing in the short term. Aramco could consider declaring itself unable to fulfil contracts on some international shipments – known as force majeure – if the resumption of full capacity at Abqaiq takes weeks.
That would rattle oil markets and cast a shadow on Aramco’s preparations for what could be the world’s biggest initial public offering. It is also set to escalate a showdown pitting Saudi Arabia and the United States against Iran, which backs proxy groups from Yemen to Syria and Lebanon. Iran-backed Houthi rebels in Yemen claimed credit for the attack, but US Secretary of State Mike Pompeo blamed Iran directly.
The Trump administration said it is ready to deploy the nation’s emergency oil reserves and help stabilise markets if needed.
“The vulnerability of Saudi infrastructure to attacks, historically seen as a stable source of crude to the market, is a new paradigm the market will need to deal with,” said Mr Virendra Chauhan, a Singapore-based analyst at industry consultant Energy Aspects. “At present, it is not known how long crude will be offline for.”
Brent jumped as much as 19.5 per cent, its biggest gain in percentage terms since 1991. It was up 12.7 per cent at US$67.85 a barrel on ICE Futures Europe at 6.33am in Singapore. West Texas Intermediate crude futures jumped as much as 15.5 per cent in New York to US$63.34, the most since 2008.
Oil sank 2.1 per cent in London to US$60.22 a barrel last week and 3 per cent in New York to US$54.85, amid concerns that slowing demand growth may augur another supply glut.