How much drone strike on Saudi Arabia oil facilities would affect oil price

Trading Discussion News and Economy
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Hello Everyone !
I am a newbie and have a question in mind, you would have heard about the unfortunate incident of drone strike on Saudi Arabia oil facilities. Saudi Arabia is the biggest exporter of oil in the world having 18% share and has lost half of its oil fields. How much do you think it would affect oil prices on Monday or coming weeks.

Cheers,
Day Dreamer

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There is no doubt that this attack is a major incident in an already highly sensitive region. The impact on SA’s crude processing facilities has been to reduce its output by half to some 5mill b/day. This amounts to roughly 5% of total global demand for crude at current levels…

Under normal conditions this would have an immediate serious upward effect on global oil prices. But we do not live in “normal” conditions nowadays. So I think there are three major aspects to consider:

1)The scale of the attack and the uncertainty surrounding its impact on immediate supplies will inevitably create an initial upward pressure on prices, probably with a notably gap up when markets open again. But the real issue is how sustained will these increases be…

  1. The attack is an act of war in an already ongoing conflict in Yemen and overlaps into the ongoing conflict between the US (which also supports SA in Yemen) and Iran (which supports the Houthi in Yemen). Therefore, one can anticipate a lot of immediate global support to avoid or minimise a shortage situation in forms such as the release of significant additional supplies from the Strategic Reserves which (almost) all nations have. The US has already confirmed their willingness to do this. In addition, other OPEC+ nations are capable of increasing supplies at very short notice.

However, whether this will be sufficient depends on how long it takes SA to repair the damage and return to normal output levels. They claim that they can do this quite quickly - but who knows!

  1. One cannot view this incident in isolation. It is an act of war. There will inevitably be investigations as to where these drones came from and who financed it. There will almost certainly be repercussions which, apart from further increasing tensions in this cauldron area, will, in turn, increase the possibility of additional and more violent acts from the Houthi- as they have already threatened!

So this was the long answer to your question. The short answer is, I don’t know!

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One could even imagine some very “off the wall” scenarios stemming from this!

Mr Trump has (amongst many others) two very important issues that are central to his policies: a strong stock market and low energy prices.

One negative impact on global economic strength has been the US-China trade wars. This has also kept oil prices depressed. Now, the US and China are meeting again in October to try and resolve this issue and there have already been some conciliatory noises from both sides. But with this sudden depletion in global oil supplies and the consequent upward fears regarding oil prices, will this cause the US to rein back on its positive rhetoric regarding these upcoming tgrade negotiations - which would put further upward pressure on oil prices?

Secondly, the US has been very hard and stringent on applying oil export sanctions against Iran - who is currently seen to be the most likely perpetrator of this terrorist act - but there is plenty of evidence that a lot of Iranian oil is still being sold and exported through a variety of devious means. The question now is, though, in the face of a sudden but brief depletion in global oil supplies, could the US decide in the short term to “turn a blind eye” to these “pirate” Iranian exports in order to maintain a balance between supply and demand, but without overtly changing their policy towards Iran?

These are but a couple of off-beat thoughts - just to demonstrate that what we see and hear at our level of awareness can be a long way off the true reality of things.

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