Global Oil prices spiked on Monday, two days after the largest oil disruption in history took place in the Persian Gulf.
Saudi Arabia lost 5.7 million barrels per day (mb/d) of production after the Abqaiq facility was attacked on Saturday, shuttering more than half of the country’s oil production.
The disruption is larger than was lost during the Iranian Revolution in 1979, Iraq’s invasion of Kuwait in 1990, and even during the Arab Oil Embargo in 1973.
Brent briefly surged by more than $11 per barrel at one point during intraday trading on Monday, the largest increase in the benchmark’s history dating back to 1988.
Early accounts indicate that Saturday’s attack may have come from a group of drones, while other analysts believe it was carried out by cruise missiles. It’s also possible there was a combination of both.
For the oil market if not global economy, Abqaiq is the single most valuable piece of real estate in planet earth. A successful attack on Abqaiq would be akin to a massive heart attack for the oil market and global economy.
The facility processes 7 mb/d of crude oil, more than half of total oil production in Saudi Arabia. It removes sulfur and gas and other impurities from the oil, making it safe for transport via pipeline.
A disruption in the Strait of Hormuz is often the source of agony for analysts trying to game out conflict in the Middle East, but Abqaiq is potentially more significant.
Extensive damage to a unique facility with unique equipment will take weeks or months to repair, analysts say.
Immediately after the attack, Saudi Arabia suggested that operations could resume as soon as Monday. But as the weekend wore on, a quick turnaround looked increasingly unlikely, as the inferno was still @ full blaze.
The oil market has gone from oversupplied to under-supplied overnight. The Kingdom has enough domestic crude oil inventories to cover its production suspension of 5.7 (million barrels a day) for almost 30 days.
Saudi Arabia spoke with OPEC allies and refrained from asking for more production. Riyadh has been trying to get some OPEC members to rein in overproduction, so they may not see an immediate need for more supply.
Russia’s energy minister also said that ample inventories can cover for the outage.
Even in a best-case scenario in which the military response does not set off a regional war, and Abqaiq comes back online, the perception of heightened risk will linger on.
Oil Price. com / ABC Flash Point News 2019.