News Analysis: Attacks on Saudi oil lift oil prices, pose limited impact on global economy

Source: Xinhua| 2019-09-17 07:27:40|Editor: Liu
Video PlayerClose

NEW YORK, Sept. 16 (Xinhua) -- The attacks on Saudi Arabia's key oil facilities have led to a surge in global oil prices, but experts said the incident might only have a short-term influence on the market and have a limited impact on global economy.

The drone attacks were reported at dawn of Saturday with several explosions on Saudi Aramco plants in Khurais and Abqaiq in the east of the country, resulting in fires that were later controlled.

According to Aramco, after Saturday's attacks, Saudi Arabia saw production cut by 5.7 million barrels, or about 50 percent of the company's daily production.

The country's total production hovers around 10 million barrels per day, with an average of 9.85 million barrels per day in August, data from the U.S. Energy Information Administration showed.

The incident sent the prices of Brent crude for November delivery soaring as much as 19 percent in intraday trading before settling at 69.02 U.S. dollars a barrel, or 14.61 percent higher. The most actively traded West Texas Intermediate crude also registered an increase of more than 14 percent.

Analysts said global crude stocks could cushion against supply shortages in the near term.

"We estimate that inventories amount to 6.1 billion barrels, or 61 days of global demand," said Caroline Bain, chief commodities economist at Capital Economics, in a note.

U.S. President Donald Trump said on Sunday that he had authorized the release of oil from the Strategic Petroleum Reserve after attacks on Saudi Arabian oil production facilities.

The International Energy Agency said in a statement that it was monitoring the situation in Saudi Arabia closely.

"We are in contact with the Saudi authorities as well as major producer and consumer nations. For now, markets are well supplied with ample commercial stocks," according to the statement released on Saturday.

Bain said if Saudi Aramco restores output fully in the next week or so, which is the mostly likely scenario, the price of Brent crude will fall back to 60 dollars per barrel by the end of the year.

She noted that in the case of an extended outage and a persistent threat of further attacks, stocks would have to be drawn down more quickly and there would be valid concerns about supply shortages.

Prices would rise to around 85 dollars per barrel this year and stay at the level for several years owing to a higher risk premium, amid ongoing tensions, said Bain.

Analyst said the incident's impact on the global economy is limited for now.

"While the attacks present yet another headwind for a global economy that is already buffeted by deteriorating manufacturing activity and elevated trade tensions, we don't believe that this short-term disruption to oil production will trigger a global recession," said Mark Haefele, global chief investment officer at UBS Wealth Management, and his research team, in a note on Monday.