The substantial gains follow an attack on facilities at the Abqaiq and Khurais oil fields in Saudi Arabia early Saturday morning local time, the former being the largest oil refinery in the nation.
“An attack on Saudi Arabia’s key oil facilities has significantly raised tension in the Middle East,” ANZ senior commodity strategist Daniel Hynes told clients in a note released on Monday. “Houthi rebels in Yemen launched a fleet of drones on Saturday which has cut the kingdom’s oil capacity in half, which is likely to see oil prices surge higher in coming days.”
Mr Hynes said markets will “quickly price in a sizeable geopolitical risk premium” into crude prices as a result of the attacks, meaning they could remain around current levels, or even increase further, depending on the length of time the facilities are offline.
“This should see Brent crude test the $US70 per barrel mark in the short term,” Mr Hynes said. “Any further upside will depend on the length of the disruption.”
RBC Capital Markets’ global head of commodity strategy, Helima Croft, described the attack as a “game changer” for geopolitical tensions in the region.
With 5 million barrels per day of the Kingdom’s oil exports at least temporarily taken offline, it represents the most serious assault to date on the country’s energy infrastructure,” Ms Croft said in a note. “Though Aramco officials have indicated that exports will resume in the next few days, there is nothing to suggest that this is a one-off event and that the Iranian-backed Houthi rebels will forgo further strikes on Saudi sites.”
In a Twitter post shortly after crude futures opened, US president Donald Trump said he has authorised the release of strategic oil reserves in the United States to help offset the shortfall in Saudi oil production.
“I have authorised the release of oil from the Strategic Petroleum Reserve, if needed, in a to-be-determined amount sufficient to keep the markets well-supplied,” Trump tweeted. “I have also informed all appropriate agencies to expedite approvals of the oil pipelines currently in the permitting process in Texas and various other States.”
In a separate Twitter post, Trump said the US administration believes it knows who was responsible for the attack, adding it was “locked and loaded” depending on verification from Saudi officials.
“There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!,” Trump tweeted.
The surge in crude prices looks set to boost shares in listed Australian energy companies on Monday. The S&P/ASX 200 Energy Index finished last week at 10583.5 points, the highest closing level since early August. Even prior to the weekend news, the index had already rallied 6.7 per cent over the past four weeks.
The sharp increase in crude prices raises the prospect of increased petrol prices for Australian motorists in the weeks ahead. But Commsec chief economist Craig James said he doesn’t believe there’ll be a lasting impact on local fuel prices, although he acknowledged there was great uncertainty as to the outlook for oil supply.
“The market is well supplied with oil and the US President says it will tap into the Strategic Petroleum Reserve,” Mr James said. “We will have to wait and see how long it takes Saudi Aramco facilities to come back online but there’s scope for other producers to fill any void from disruption to Saudi production.”
David Scutt covers markets for The Sydney Morning Herald and The Age