Oil prices jump as attack on Saudi plant threatens supply

The loss of five per cent of world crude oil output from an attack on Saudi Arabia’s largest oil-processing plant pushed crude prices sharply higher on Monday.

United States crude oil was trading nine per cent higher, while Brent crude added more than 9.4 per cent. The attack on the Saudi Aramco facility halted output of more than half of Saudi Arabia’s daily exports.

That’s especially worrying for oil-thirsty Asia: China, Japan, South Korea and India are major customers for Saudi oil.

“The attacks this time posed a serious threat to key international energy infrastructure, and we express concern that they undermine the energy security of the entire world and stability in the region,” South Korea’s Foreign Ministry said in a statement.

“We condemn any similar acts,” it said.

TAPPING STRATEGIC RESERVES

Oil prices spiked shortly after trading began on Monday, with US crude jumping more than 15 per cent and Brent leaping nearly 20 per cent. But the initial surge moderated on talk of tapping strategic reserves to weather any shortfalls from the loss of 5.7 million barrels of crude processing capacity a day.

US crude added US$4.79 per barrel, or 8.7 per cent, to US$59.63 per barrel in electronic trading on the New York Mercantile Exchange. Brent picked up US$5.78 per barrel, or nearly 10 per cent, to US$66.04 per barrel.

Yemen’s Iran-backed Houthi rebels claimed responsibility for the attack on the Saudi Aramco plant.

“To take Saudi oil production down 50 per cent, that’s shocking,” said Jonathan Aronson, a research analyst at Cornerstone Macro.

Refiners, who would profit from higher prices, saw their share prices jump, with China’s CNOOC up 7.4 per cent and PetroChina gaining 3.5 per cent. Russia’s Rosneft’s shares gained 3.2 per cent while Australia’s Woodside Petroleum ticked up 4.3 per cent. Airline shares declined in anticipation of higher fuel costs.

The attack may add to anxiety about the stability of the world’s oil reserves, given the tensions rumbling in the region.

“Saudi Arabia has been a very reliable supplier of oil in the world,” said Jim Burkhard, who heads crude oil research for IHS Markit. He said the attack added a “geopolitical premium” back into the price of oil.

Oil prices tend to hurt the economy as consumer costs rise, and Asia is the region most vulnerable to big supply disruptions.

Saudi Arabia provides about a fifth of China’s crude imports, more than 37 per cent of Japan’s, and almost a third of South Korea’s. Japan is nearly 100 per cent dependent on imports for its oil.

Higher oil prices will increases costs throughout the production chain for East Asian countries that are both export-oriented and dependent on oil imports, said Francis Lun, a Hong Kong-based analyst.

“It will increase the price of everything produced, from electronics to medical equipment to food and everything else. And it will hurt the East Asian economies and lower their economic growth,” Lun said.

The world’s richest countries have oil reserves of more than two billion barrels.

According to the Joint Organization Data Initiative, Saudi Arabia has nearly 27 days’ worth of reserves. It holds reserves at home and in Egypt, Japan and the Netherlands. That can alleviate some concerns.

Meanwhile, work was under way to restore production at the Abquaiq plant. The Wall Street Journal reported Sunday that Saudi officials said a third of crude output would have been restored by Monday. Bringing the entire plant back online may take weeks. Officials said they would use other facilities and existing stocks to supplant the plant’s production.

Chris Midgley, global head of analytics for S&P Global Platts, estimates prices could surge into the “high US$70” per barrel range. It could go even higher if disruptions are prolonged, but that is not expected, he said in a research note.

AP