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The attack to Saudi Arabia oil facilities leaps international crude oil price
Published:2019-09-17 15:47:00    Text Size:【BIG】【MEDIUM】【SMALL

U.S. and European crude oil futures increased their biggest percentage in more than 30 years hence the turnover hit a record high after an attack on Saudi Arabia oil facilities knocked more than 5 million barrels a day off production. Nymex west Texas light oil futures for October 2019 settled at $62.9 a barrel on Monday (Sep.16th, 2019 ), up $8.05, or 14.7 percent, from the previous session, trading in a range of $58.77 to $63.38. Brent crude oil futures for November 2019 settled at $69.02 a barrel, up $8.80, or 14.6 percent, from the previous session, trading in a range of $64.75 to $71.95.
Drone attacks on Aramco's oilfields on September 14th, which knocked 5.7m barrels a day off Saudi Arabia oil production, nearly 6% of global output. As a result, WTI jumped more than 15 percent when the New York mercantile exchange electronic trading system opened Sunday night eastern time. Brent crude oil rose nearly 19 percent in early trading. But later, international oil prices pared gains after the U.S. President said he would authorize the use of the strategic petroleum reserve after determining the amount. But U.S. secretary of state Pompeo said Iran should be responsible for this, and analysts fear oil prices could rise even higher in the event of a military conflict.
Aramco did not give a timetable for resuming production. Reuters quoted sources as saying it could take weeks for Aramco to fully return to normal production, but Saudi Arabia would use its stocks to make sure the normal export of oil. But some analysts say Saudi Arabia may have to reduce exports if the shutdown continues for too long. Reuters, citing people familiar with the matter, said Aramco, Saudi Arabia's state oil company, had informed some customers that shipments had resumed after operations were disrupted by an attack on Saudi oil facilities over the weekend.
Currie, an analyst at investment bank Goldman Sachs, indicated it was difficult to predict how much the crude oil prices would rise in the coming weeks. He said a brief one-week shutdown could hit oil prices at $3 to $5 a barrel. Oil prices are expected to rise $5 to $14 a barrel if the current situation of shutdowns lasts two to six weeks. If it persist for more than six weeks, Brent is expected to rise rapidly above $75 a barrel. At this level, we believe the strategic petroleum reserve may be drawn upon to cover several months of supply shortfalls and to keep oil prices within this range. In an extreme scenario of a net loss of 4million barrels a day for more than three months, oil prices could  top $75 a barrel, triggering a larger response from shale oil supply and demand.
Amarpreet Singh, an analyst at Barclays capital, an investment bank, thinks Saudi Arabia's oil exports are unlikely to fall significantly despite the attacks on its vital oil infrastructure. Saudi Arabia has a stockpile of about 188 million barrels of crude oil and about 97 million barrels of refined products, according to the Riyadh-based joint global petroleum database.This is equivalent to 35 days' worth of exports of crude oil and refined oil products. Aramco's four crude export ports can store about 66 million barrels of oil, according to the company's bond announcement. Still, Singh said he expected oil prices to rise as traders concluded there was a high geopolitical risk in oil supplies.
Abhishek Deshpande, of JP Morgan, said the outlook for oil prices was "highly uncertain" and this would depend on the timing of Saudi Arabia's resumption of operations at the houreis field and the ABU qaig refinery. Depending on the timing of production disruptions, Brent could rise $5 to $30 in the coming months, he said. His basic assumption is that Saudi Arabia's crude oil production capacity will halve by a month, reducing its crude inventories by 149 million barrels. The impact on oil prices is hard to predict, but JP Morgan expects Brent to rise to $67.50 a barrel.
Saudi Arabia is the only producer in the Middle East with spare capacity of more than 2 million barrels a day, not enough to make up for the shortfall. The U.S. gulf coast was unusually active on Monday, with a window opened for oil exports to Europe and Asia in the wake of the Saudi attack. Currently, U.S. crude oil exports can reach more than 3 million barrels per barrel, which could quickly increase to 4 million barrels per day if demand increases. After the oil price surge, mothballed U.S. shale oil RIGS will be activated again, and U.S. crude oil production will increase more than analysts had expected.
In the European market, oil companies are likely to focus on Russian crude oil. Attacks on Saudi Arabia's oil fields have led oil prices soaring, benefiting Russia, a big oil exporter.
Thus, if Saudi Arabia takes a long time to resume production or triggers military conflicts in the Middle East, the world oil market will be reshuffled and the U.S. and Russia will become new sources of supply to the global oil market.

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