NEW YORK—Oil prices spiked Monday following Saturday’s attack on Saudi Arabia's largest oil processing plant, reports The New York Times. Prices initially surged as much as 18% but declined after President Donald Trump authorized the use of oil from the U.S. emergency oil supply.
The nation’s oil stash, which contains 645 million barrels, was established after the OPEC oil embargo in the 1970s. It has been drawn on only three times, most recently in June 2011 when civil unrest in Libya unsettled global oil exports.
Saturday's coordinated drone strikes at the plant caused the loss of 5% of world crude oil output and stopped more than half of Saudi Arabia's daily exports. That's especially worrying for major Saudi oil customers, such as China, Japan, South Korea and India. Oil prices tend to hurt the economy as consumer costs rise, and Asia is the region most vulnerable to major supply disruptions.
Work is underway to restore production at the plant. The Wall Street Journal has reported that officials expected a third of crude output would be restored by yesterday. However, bringing the entire facility back online may take weeks.
The world's richest countries have oil reserves of more than 2 billion barrels. According to the Joint Organization Data Initiative, Saudi Arabia has a 27 day supply of oil, holding reserves at home and in Egypt, Japan and the Netherlands, which alleviates some concerns.
Chris Midgley, global head of analytics for S&P Global Platts, estimates prices could surge into the "high $70" per barrel range and could go even higher if disruptions are prolonged.
The situation is better today than it would have been a decade ago, thanks to the U.S. energy boom. The U.S. has a cushion because it produces plenty of oil, leaving the country less reliant on the Middle East. But when it comes to oil, it's still a global market. “If you take oil anywhere out of system it affects everybody,” said Jim Burkhard, head of crude oil research for IHS Markit.
Still, even if the plant goes back online and there is no fundamental change to the world's supply of oil, prices may move higher and stay higher because traders would build in a “security premium,” said Michael Lynch, president of Strategic Energy & Economic Research (SEER).
It would reflect worries that future attacks might jeopardize global oil supplies. And in a world already concerned about supply, the impact of another attack could mean a sharp effect on prices, said Kevin Book, managing director of Clearview Energy Partners. “It's almost like an open season for a big attack.”
Iranian-supported Houthi fighters from Yemen claimed responsibility for Saturday’s attack. U.S. officials blamed Iran, which has officially denied the charges. Both U.S. and Saudi officials are investigating the possibility that another Iranian-backed group carried out all or part of the attack using cruise missiles launched from Iraq.