Home Latest News Brent Crude Oil Price Surges 18% On Saudi Oil Field Drone Attacks

Brent Crude Oil Price Surges 18% On Saudi Oil Field Drone Attacks

by Paul

In one of the biggest oil price swings in many years has seen the price of Brent crude open 18% up on its Friday closing price today, with WTI also spiking by 12%. The Brent crude oil price has risen to $70.97 and WTI $61.50 after drone attacks claimed by Yemeni Houthi rebels set alight the Abqaiq plant and Khurais oil field in Saudi Arabia.

Aramco, the state-owned oil company planning an imminent IPO, expected to be the biggest ever, was forced to suspend production to the tune of 5.7 million barrels of crude. That represents 60% of total Saudi production and around 6% of total global supply.

Where oil prices go from here will be to a large extent reliant on how quickly production can be restored with an update expected today. However, with the kingdom’s air defence vulnerabilities exposed, there will be lingering worries over the threat of further attacks. A worst case scenario could see oil prices hit $100 over the coming period – a development that would have serious knock-on consequences for the fragile global economy. And while a surge in oil prices would ordinarily boost Saudi Aramco’s bottom line, analysts believe that the events of the weekend put the immediate prospects of the planned IPO under threat with investors concerned about security risks.

Saudi Aramco have been planning to raise around $200 billion by selling off shares in the company at a valuation of $2 trillion – a market capitalisation that would be almost double that of Microsoft, currently the world’s most valuable public company. The funds are earmarked for investment in diversifying the Saudi economy away from its reliance on the oil and gas industry. Crown Prince Mohammad bin Salman’s ‘Saudi Vision 2030’ includes a number of ‘mega’ projects that the IPO’s proceeds are intended to fund.

Despite the quick response of Houthi rebels to claim the attacks, US secretary of state Mike Pompeo has implicated Iran. The belief is that the Yemeni Houthis would not have had the capacity to launch a drone attack of such sophistication alone. Further adding to the suspicion that Iran’s tentacles are involved is the fact that it looks like the attacks were launched from a region of Iraq where Iran-backed militias are active. Saudi Arabia and gulf allies the UAE have been involved in a long and bloody proxy war with Iran in Yemen, with the latter backing Houthi rebels and the former the country’s internationally recognised government.

A more significant factor driving the upwards surge in oil prices than the temporary reduction in Saudi Arabia’s production capacity is newly heightened awareness of the region’s current instability and its threat to the global oil supply. Quoted in The Times, RS Energy Group’s director Bill Farren-Price commented:

“The genie is out of the bottle. It is now clear that Saudi and other Gulf oil facilities are vulnerable to this kind of attack, which means that the geopolitical risk premium for oil needs to rise.”

Any major and extended rise in oil prices would have a significant impact on energy intensive sectors from transport and logistics to utilities and heavy industry. With global economic growth already in danger of stalling, markets are likely to open the week nervously.

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