The Saudi Oil Field Attacked on Weekends, Oil Prices Jumped 19%

Saudi Interior Ministry said that on the early morning of Saturday (September 14th) local time, 10 drones armed with Houthi attacked two Saudi Arabian oil fields and oil facilities operated by Saudi Arabia, leading to global oil supply. A major fire broke out in an important crude oil processing plant. Traders are scrambling to calculate the increase in oil prices. The closure will affect nearly 5 million barrels of crude oil per day, affecting 5% of global oil production per day. Although Saudi Aramco believes that it can recover quickly, if not, the world may face a production shortage of up to 150 million barrels per month. This result may push the price of oil up to three digits, or more than $100/barrel.

The attack caused the most serious damage in the history of the oil market, surpassing the loss of Iraq’s invasion of Kuwait’s southern Iraq and Iraq’s oil supply in August 1990. According to the US Department of Energy, this also exceeded the loss of Iranian oil production during the Islamic Revolution of 1979. As tensions in the region have intensified, Iranian-backed Houthi forces have recently launched attacks on Saudi oil pipelines, ships and other energy infrastructure.

The Hosei armed forces in Yemen claimed responsibility for the attack on Saturday, which resulted in a halving of Saudi oil production and more than 5% of global supply. US Secretary of State Pompeo said that the attack was behind the scenes of Housei’s ally Iran, and called on all countries to "publicly and explicitly condemn the Iranian attack."

In response, Iran denied the allegations, and the Iranian Foreign Ministry described Pompeo’s remarks as “blame and ineffective accusation”.

The US is ready to release emergency crude oil reserves when necessary, the attack once again reminded the market to pay attention to the oil geopolitical risk premium, which had a negative impact on the Saudi Aramco IPO. If the damage is more serious and the oil price soars, the United States will release strategic oil inventories.

US Department of Energy spokesman Shaylyn Hynes said that after the Saudi Aramco refinery was attacked by drones, the Trump administration was ready to use the US emergency crude oil reserves to reduce the impact on the crude oil market.

Last weekend, Trump continued to publish tweets, saying that the oil reserves released will be enough to ensure market supply, and said: "The oil is more!" Trump then said in the tweet, "We know that the culprit is Who, the United States is all ready, wait for Saudi Arabia to say what they think it is."

Whether the US strategic oil reserve, which ranks first in the world, will be used passively depends on how quickly Saudi Arabia can resume production. The US strategic oil reserve was established after the Arab oil embargo caused a surge in oil prices in the 1970s, after three times of passive use in the 1991 Desert Storm Operation, Hurricane Katrina in 2005, and the disruption of Libyan crude oil supply in 2011.

Four possible shutdown scenarios

 

1. Discontinued one week

Very short downtimes (for example, one week) may push up long-term oil prices to reflect rising risk premiums, despite the de-bottleneck in the Permian shale basin, weak economic growth prospects, and non-OPEC oil production in 2020 The prospect of strong growth, long-term oil prices have fallen back from last fall. This price impact may be $3-5/barrel.

 

2. Two to six weeks of production stoppage

If the current oil price level of two to six weeks is suspended, in addition to the long-term oil price trend, the US oil crude oil futures curve (two months and three years) will further steepen, reaching 2 to 9 US dollars per barrel. . All in all, oil prices are expected to fluctuate between $5 and $14/barrel, which is comparable to the outage (at current levels, with a six-month outage and a stoppage of one million barrels per day, equivalent to six weeks of downtime).

 

3. Discontinued for more than six weeks

The current fault should be announced for more than 6 weeks. It is expected that the rapid rise in crude oil prices has risen above the level of US$75 per barrel. It is believed that a US crude oil emergency stock (SPR) release may be realized, large enough to balance such a deficit.

 

4. Discontinued in three months

If the extreme interruption of 4 million barrels per day exceeds 3 months, the oil price may exceed $75/barrel, which will trigger a large-scale shale oil and gas supply and demand response.

Brent crude oil rose nearly 20% after the market opened on Monday, the largest increase since records began. The US oil was not to be outdone, and once touched $63.4 per barrel, an increase of 15%. What is even more worrying is that the new crisis between Mesa and Iran will have a wider impact, or there will be a “more deadly danger”.

Behind the attack on the Saudi oil facility is the turmoil in the regional situation, especially related to the game between the United States and Iraq. It is natural for Iran to use its regional resources to compete with the United States while constantly being under extreme pressure. In the next step, the United States may increase its pressure on Iran, and the situation in the Gulf will be more complicated and tense.