The best regulated crypto exchange
Find out why?
50 BTC prize pool!
Get your share!
I'm in

Saudi Arabia oil attack: The impact on oil prices

By Connor Freitas

What the fallout from the Saudi Arabia drone attack might be, and what could happen next

Saudi Arabia oil attack: The impact on oil prices

In the early hours of a Saturday morning in September, a drone attack struck the heart of Saudi Arabia’s oil infrastructure. The attack has disrupted the daily production of an estimated five million barrels of oil — to put that in context, that’s more than half of the kingdom’s entire output, and 5% of global output.

Since the Saudi Arabia oil attack, questions have been raised about who was responsible. The strikes also caused alarm on the markets, not least because of how sophisticated they were. Although Iran-backed Houthi rebels fighting a Saudi-led coalition in nearby Yemen have said they were to blame, the United States has accused Iran of being the mastermind behind the “act of war.”

Given the sheer volume of the output affected — and the significant damage inflicted on two major facilities in Saudi Arabia — an oil price jump was inevitable. Here, we’ll examine the latest oil price news, what the fallout from the Saudi Arabia drone attack might be, and what could happen next.

The extent of the oil price rise

The Saudi Arabia oil attack took place on Saturday, September 15— and by the Monday, investors were digesting news of what had happened. For a time, Brent crude oil futures had leapt by about 20% — an increase of approximately $11 per barrel. The oil price rise was limited to 10%, a premium of $6, later that day.

In the immediate aftermath of the incident on Sunday, Donald Trump had proposed that supplies from America’s emergency fuel storage, known as the Strategic Petroleum Reserve, could be released in order to calm turbulence in oil prices. It could be argued that this helped to placate the oil markets — as well as the realization that, although Saudi oil exports could be affected for many weeks, it’s unlikely to send deep shockwaves through the global economy.

When it comes to the oil prices forecast for the future, the concern doesn’t lie in what has just happened, but whether Saudi Arabia’s infrastructure — which is responsible for 1 in 10 barrels produced internationally — could be susceptible to other brazen attacks, with tensions in the Gulf showing little sign of abating. Another headache caused by the Saudi Arabia drone attack lies in how the world’s spare production capacity has taken a substantial hit, meaning that further unplanned outages could indeed cause a shortage.

How long are oil prices forecast to rise?

What lies ahead is always difficult to predict, but Saudi Arabia has wasted no time in setting out a clear schedule for when its output capacity will return to normal levels. The kingdom says supply to customers has been unaffected because it has been available to draw on reserve inventories, and lost production is set to be restored by September’s end. Riyadh also predicts that output capacity will have returned to 12 million barrels a day by the end of November. By Tuesday, September 17 — just three days after the attack — Saudi officials said one of the processing plants affected had already restored 50% of production.

Another substantial oil price rise will follow if Saudi Arabia’s infrastructure is targeted again, with energy analysts warning the kingdom has little way to absorb further shocks. Oil sectors in other parts of the region — such as Kuwait — are increasing security to the highest levels possible in the aftermath of the attack.

For now, oil prices are higher than what they were before the Saudi Arabia drone attack. That’s likely to remain the case for some time, but analysts believe that prices will begin to head back to previous levels when capacity returns.

An oil price rise for consumers?

The only remaining question is what impact — if any — will the unrest in the Gulf have on consumers who are looking to fill up their tanks with gas.

In the US, where domestic oil production has risen substantially in recent years, consumers are set to see less of an impact at the pump than they would have done previously. That said, some analysts have warned that prices in America could rise by about 25 cents per gallon in the short-term, with gas stations set to pass along any costs instead of absorbing them.

Like to share your thoughts and ideas about crypto and trading? You could join us as an external author. Email us on [email protected] to find out how you could become a contributor.
Subscribe to news
iMac Image
The most beautiful trading app
google play storeapple store
iPhone Image
iPhone Image